Have the ECB's contingencies been met?

The latest economic data have left the ECB’s two “contingencies” for further policy action – a worsening of the medium-term inflation outlook and an unwarranted tightening of the money markets – either met or on the brink. While euro-zone CPI inflation rose in April, the increase was smaller than expected and the trend remains downward. Meanwhile, an apparent shortage of liquidity has prompted banks to increase their borrowing from the ECB and prevented the central bank from fully sterilising the asset purchases it made under the Securities Markets’ Programme. Against this background, more policy action still looks likely, if not this week, then in June or soon after.