The Russian invasion marked a "turning point for Europe", said ECB President Christine Lagarde after the first meeting of the Governing Council since the start of the conflict.

The war and the sanctions against Moscow will have "a significant impact on economic activity and inflation, through rising energy and commodity prices, disruption of international trade and confidence", he said. she warned.

Wearing pinned to his lapel a brooch in the colors of Ukraine, Ms. Lagarde reaffirmed the bank's commitment to "take all necessary measures" to guarantee financial stability.

Given the uncertainties and the difficulty in measuring the extent of the repercussions, the Frankfurt-based institution "will keep all options open" to protect the economy from the shock announced on a situation which is barely recovering from the consequences of the pandemic.

Unclear on rates

On Thursday, the guardians of the euro confirmed the end this month of the emergency debt purchase program (PEPP) launched two years ago to support the economy in the face of Covid-19.

But the ECB surprised observers by announcing that it would accelerate the gradual reduction of another, older bond-buying program, as prices soar in the eurozone.

ECB President Christine Lagarde after the first meeting of the Governing Council since the start of the conflict in Ukraine on March 10, 2022 in Frankfurt Daniel ROLAND POOL / AFP

Under this so-called "QE" programme, the central bank's main weapon during the years of sluggish inflation, monthly net purchases of private and public debt will amount to 40 billion euros in April, 30 billion euros in May and 20 billion euros in June.

The Governing Council "will conclude the net purchases (...) in the third quarter" if the medium-term inflation outlook "does not weaken", it added.

Previously, the ECB wanted to reduce them to 20 billion from October only and let them last "as long as necessary".

Another change linked to the conflict in Ukraine: the ECB no longer asserts, contrary to what it has done so far, that a halt to these debt purchases will be automatically followed by a rise in key rates, which would be the first since 2011.

"Any adjustment to the key ECB interest rates will occur some time after the end of the Governing Council's net purchases under the APP (the asset purchase program, editor's note) and will be gradual", is he indicated without further temporal precision.

The “time horizon isn’t what’s going to matter the most,” Ms. Lagarde said, adding that the rise could just as well come “the following week” as “months later,” and economic data would be the decisive factor.

Inflation above 5%

The ECB is now sailing on sight when it had paved the way for a "normalization" of its accommodating monetary policy, before the outbreak of war in Ukraine.

Euro zone: inflation AFP/Archives

Also, the decision of the day, a clever balance between divergent views within the ECB, "gives the central bank maximum flexibility and leaves open the option of a rate hike before the end of the year", analyzes Carsten Brzeski, from ING Bank.

This flexibility is necessary given the double shock announced on prices and growth.

The war in Ukraine gave a new impetus to inflation in the euro zone, which reached a record level of 5.8% in February.

In new forecasts that take into account the war in Ukraine, the bank cut its revised growth forecast to 3.7% for 2022, against 4.2% previously.

And ECB experts have revised inflation forecasts for this year sharply upwards, to 5.1% from 3.2%, then to 2.1% in 2023 and 1.9% in 2024. he institute is aiming for a rate of 2% over the medium term.

If the central bank has not closed the door to a possible first rate hike at the end of 2022, it “has in no way suggested that it considers such an increase as probable”, observes Holger Schmieding, analyst at Berenberg.

© 2022 AFP