ECB provides balanced policy amid financial turmoil
The ECB sent a clear and balanced message at its meeting this week despite the heightened market stress caused by trouble in the American banking system and Credit Suisse. Although it hiked rates by 50bps, as widely expected, it acknowledged that developments in financial conditions are also part of the indicators driving its data-dependent approach as preserving financial stability is crucial. For now, we stick to our call that the ECB will slow the pace of tightening to 25bps in May, followed by two more 25bps hikes. But a pause is also a plausible option should market tensions re-emerge and cause systemic threats.
What you will learn:
- The European Commission finally presented the “Net Zero Industry Act”, which aims to support environmentally clean products in response to the Inflation Reduction Act (IRA) implemented by the US last year. But final approval of the text is unravelling after Germany reversed its position and is now rejecting the agreement to ban new combustion engines by 2035.
- In France, the government decided, once again, to use a legislative tool to pass its controversial pension reform in parliament without a vote. This is a clear failure for the government as it didn’t manage to gather enough support from Les Républicains, although they largely agreed with the text. Social and political tensions are likely to strengthen in the coming weeks.
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