The writer is chief economist at German bank LBBW
As inflation rises in the eurozone, the pressure is inevitably building for the European Central Bank to step up planned monetary policy action.
In March, European Central Bank president Christine Lagarde explained how the overdue normalisation of monetary policy was envisaged in Frankfurt: in the third quarter, bond purchases could be reduced to net zero with only maturing securities to be replaced. Only then would interest rates be raised “gradually”.
The ECB is likely to be concerned that a more rapid normalisation of monetary policy, comparable with moves by the US Federal Reserve or the Bank of England, could entail risks to financial market stability. For this reason, it may prefer to move only cautiously, almost as if on eggshells.
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