Economics: ECB = Extra Cautious Bias

Market pricing suggests the first ECB hike could be this year

Some are starting to question whether the ECB will be the next major central bank to suddenly shift gears. Futures pricing suggests markets believe there's just an 18% chance that the deposit rate remains at -0.50% through the course of 2022.

Wage growth & inflation expectations key to the medium-term outlook

The ECB’s medium-term assessment of inflation is dependent on inflation expectations and wage growth. So far, both remain modest. Philip Lane has stressed that the conditions for raising interest rates are not in place, and probably won’t be this year.

ECB response (unsurprisingly) dependent on inflation trajectory

If high inflation persists, and supply-chain pressures intensify, the ECB may be forced to act. But if inflation weakens as expected, proximity to the lower bound may convince them to persist with their cautious approach, even if wage growth starts to rise.