ECB is widely expected to keep monetary policy unchanged today. The central bank might shed some light on asset purchases after the end of the emergency program PEPP next March. But the details on what to follow will only be revealed at the December meeting, together with new economic projections. There are some expectations that the flexibility of the original APP would be increased, but this is far from being certain.

There are also speculations of an earlier rate hike, with market pricing it to happen by 2022 year end. But President Christine Lagarde would likely talk down such expectations. Instead, ECB would just reiterate that the policy rates would “remain at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon and judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium term”.

Some previews on ECB:

• ECB Preview – ECB to Convince Market Low Interest Rate Still Necessary Despite Rising Inflation
• ECB Meeting Preview: What To Expect?
• ECB Could Play Some Defense
• ECB Preview – The Prelude to December

ECB Governing Council member Pierre Wunsch said, “I don’t think we’re going to move from 50 basis points (in March) to zero.”

“It might be another 50 basis points or we might be moving to 25. I will certainly not exclude another 50 basis points but that’s going to be dependent on the data,” he added.

“If core remains persistent, if we keep seeing core momentum being close to 5%, for me a terminal rate of 3.5% would be a minimum,” Wunsch said. “But I don’t want to give any number that is not conditional on incoming data.”

“Rates are clearly above 4% in the UK and the U.S.; that would also be a reference for me,” Wunsch said. “Why would we stay at 3% if we have more or less similar core numbers?”

“I’m not saying we need to go to 4%… but if incoming data continue to show very persistent core, we will have to look at what the U.S. and UK seem to consider as a restrictive enough interest rates to bring inflation back to 2%.”

ECB Chief Economist Philip Lane said in a conference over the weekend, monetary tightening is “going to dampen demand”, and “we’re not going to pretend this is pain free”.

“Demand is now a source of inflation pressure, it was not six or nine months ago in the same way it now is,” he added.

While rate hikes could continue at each remaining meeting of the year, and extend to early next year, Lane said ECB is open mind on where to stop with a meeting-by-meeting approach.

On the economy, Lane said separately in an RTE interview, “If we think our base case is to barely grow, a technical recession – falling into a mild recession – cannot be ruled out.”