• Every meeting is a live meeting; a lot can happen until April 30 ECB policy meeting

• Market pricing of two rate hikes this year is reasonable

• Energy price developments are not far from baseline but moves volatile, uncertain

• Have not seen large second-round inflation impacts materialise

• Firms may start adjusting prices quicker than in the past given recent experience with inflation

An ECB sources report yesterday played down the chances of an April rate hike and the market has responded by pushing the implied odds down to 21% from as high as 39% recently. For June though, a hike is 67% priced in and there almost exactly 50 bps of hikes priced in by December.

ECB Governing Council member Martins Kazaks has signaled a lean toward further policy tightening, characterizing market expectations for two additional rate hikes this year as “reasonable.” While noting that significant second-round effects—where wages and prices spiral upward—have yet to fully materialize, he warned that corporate behavior has shifted. Firms, seasoned by recent inflationary spikes, may now adjust prices more rapidly than historical norms, potentially keeping inflation stickier for longer.

Kazaks emphasized a state of high alert, noting that “every meeting is a live meeting” and cautioning that significant data shifts could occur before the April 30 policy gathering. Although energy prices currently align with the ECB’s baseline, he labeled the sector as volatile and uncertain. Overall, his tone suggests that while the worst-case scenarios for inflation have been avoided so far, the ECB remains firmly in a restrictive stance to preemptively counter quickening price adjustments.