ECB to maintain flexibility in face of Omicron

Just a day after we expect the Fed to prepare the ground for substantially tighter monetary policy in the coming years, policymakers at the ECB will probably commit to doubling their monthly APP purchases to €40bn from April 2022 and continue purchases until at least the end of the year. And while we think they will confirm their intention to end net PEPP purchases in March 2022, they will probably say they could re-start them again if needed. Christine Lagarde’s main message will be that, while risks have increased, the Bank still sees the recent rise in inflation as temporary.