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The ECB’s relatively muted policy reaction contrasts with the more aggressive response of central banks physically further removed from the war. Image Credit: AP

The European Central Bank isn’t likely to rush to new decisions this week as record inflation in the euro zone and a war raging just over its frontier leave officials navigating a fog of uncertainty.

With the Governing Council having already accelerated a wind-down of stimulus in March, investors will focus on how President Christine Lagarde and her colleagues gauge the need for interest-rate hikes later this year, looking out too for any hint on contingencies for market turmoil.

While the fastest inflation in the euro’s history, stoked by energy costs, has galvanised officials towards tightening, the conflict still leaves them plagued with doubt about the impact. In March, one of them drew on the work of 20th century US economist Frank Knight to describe the predicament.

“It was suggested that, in these conditions, the ECB was grappling with ‘Knightian uncertainty’, i.e. a type of uncertainty that was not quantifiable. Fears and concerns associated with the war could not easily be captured by standard models.”

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Divergent responses

The ECB’s relatively muted policy reaction contrasts with the more aggressive response of central banks physically further removed from the war. The US Federal Reserve has already raised rates, New Zealand may hike again on Wednesday and hours later, the Bank of Canada might even accelerate tightening with a 50 basis-point move.

For euro-zone officials, however, their decision on Thursday is likely to mark another moment of angst contemplating a unique shock that threatens both price stability and economic growth in a region still scarred by the coronavirus ordeal. And in a vivid reminder of how that problem still lingers, Lagarde said last week that she too has COVID-19.

“Lagarde signaled in March that the Governing Council intends to stay on the course of monetary normalisation, despite the war in Ukraine,” said David Powell, a senior European economist.

Among other decisions in the coming week, China’s central bank might cut rates while Israel’s may raise. Elsewhere, data in both the US and UK may show new highs for inflation.

US and Canada

Data on Tuesday is projected to show US inflation continued to accelerate in March. The closely watched consumer price index is forecast to have risen 8.4 per cent from a year ago, the most since the early 1980s, and 1.2 per cent from a month earlier. The monthly gain, expected to include higher energy costs, would be the biggest since 2005.

The holiday-shortened trading week will also include figures on consumer demand at the end of the first quarter. While higher gasoline prices probably helped lift the value of retail sales last month, a core gauge is forecast to be little changed in March.

Charles Evans, Lael Brainard and Patrick Harker are among Fed policy makers scheduled to speak.

In Canada, meanwhile, inflation concerns are likely to drive its central bank to become the first in the Group of Seven since the pandemic to push ahead with a half-percentage point rate hike. Investors in overnight swaps are pricing in about a three-quarters chance of such an out-sized increase.

The Bank of Canada began its hiking cycle last month, raising the policy rate to 0.5 per cent from the emergency low of 0.25 per cent. Trading in overnight swaps suggest it will climb to almost 3 per cent over the next 12 months - a tightening pace that hasn’t been seen in decades.


China gets the week started with consumer and producer price readings on Monday that are set to show a slight moderation in industrial inflation.

Credit and trade data follow, while the central bank will have a chance to lower borrowing costs when it sets rates in its medium-term lending facility at the end of the week.

New Zealand

The Reserve Bank of New Zealand looks set to raise rates by a quarter-point on Wednesday as it continues to drive the leading group of policy tighteners tackling inflation in Asia-Pacific.


The Bank of Korea, another pacesetter in the region, meets the next day and also has reasons to hike again after price growth topped 4 per cent for the first time in a more than a decade. But with Rhee Chang-yong yet to be confirmed as the BOK’s new chief, a governor-less board may end up holding again.


The Bank of Japan will be closely watching markets again, with yields and the yen still close to key pressure points. Governor Haruhiko Kuroda speaks with his branch managers about the state of Japan’s economy on Monday.


Employment figures for Australia on Thursday could further ramp up speculation of an RBA policy move if they show another improvement as a federal election looms.


Singapore on Thursday is expected to tighten policy settings further as it shifts its focus toward fighting imported inflation pressures.

Sri Lanka

Talks between representatives of Sri Lanka and the IMF are expected to get under way Monday in Washington, which could provide signals to bondholders on whether it’s heading for a default or debt restructuring.

Europe, Middle East, Africa

With the first round of the French election on Sunday, the verdict on President Emmanuel Macron’s bid for a second term may dominate the news in the euro zone at the start of a week largely curtailed throughout the region by Easter.

Data reports in the UK start with February gross domestic product on Monday and labor statistics on Tuesday. All economists surveyed on the inflation data on Wednesday predict yet another acceleration. The median is for 6.7 per cent, with the highest forecast from Kallum Pickering at Berenberg, anticipating 8 per cent.

Elsewhere, the Bank of Israel is expected to raise rates for the first time in more than three years on Monday. Most analysts predict a rate hike of 15 basis points, but some expect more aggressive action.

Data the same day in Egypt is expected to show inflation in urban centers accelerated in March, mainly due to seasonal food-price rises and a hike in tobacco prices. The ramifications of the spike in global commodity prices and the recent pound devaluation are likely to be more pronounced starting from April.

Turkey is expected to keep rates on hold on Thursday despite a worsening outlook for inflation, which soared to a fresh two-decade high in March.

Uganda’s central bank is likely to keep its benchmark rate unchanged for a fifth straight meeting to support economic growth, as an acceleration in inflation lags behind most other countries and, at 3.7 per cent, is well below its medium-term target of 5 per cent.

Latin America

Mexico starts the week with manufacturing and industrial output results for February, followed by March same-store sales. While analysts expect some improvement in this batch of readings, accumulating headwinds have economists marking down 2022 growth forecasts.

Look for strong readings out of Colombia for February, with omicron in retreat and the impact of Russia’s war on Ukraine yet to hit.

Retail sales, manufacturing and industrial output have been running at historically high levels over the last year, consistent with 2022 GDP growth forecasts of better than 4 per cent.

The minutes of the March 29 meeting of Chile’s central bank will be a must-read after policy makers signaled that an end to their aggressive tightening cycle may be nearing.

Argentina’s 22nd agreement with the International Monetary Fund sets an inflation goal for 2022 of 38 per cent to 48 per cent. Early estimates for the March print of the national consumer price index see it hitting 54 per cent.

Brazil posts a flurry of reports, including retail sales, lending, current account, foreign direct investment and budget metrics before closing the week with GDP-proxy data.

Economic activity in January was lower than expected and indications point to a further drop in the February figures posted Thursday.