Lane Says ECB Will Do What’s Needed for Economy Amid Ukraine War

(Bloomberg) -- The European Central Bank is closely monitoring the economic consequences of the war in Ukraine and will do whatever’s necessary to support the continent’s rebound from the pandemic as the impact becomes clearer, according to Chief Economist Philip Lane.

In his final public remarks before the weeklong quiet period that precedes ECB policy meetings, Lane said Russia’s invasion and the latest record euro-zone inflation reading, released earlier Wednesday, will be taken into account in upcoming economic projections.

He said the euro’s recent depreciation, which Deutsche Bank has flagged as another factor stoking prices, should be seen as a reversal of the strengthening that took place in the pandemic’s first year, leaving the exchange rate not too far from pre-crisis levels.

“The ECB stands ready to take whatever action is needed to fulfill its responsibilities to ensure price stability and financial stability in the euro area,” said Lane, the ECB’s most influential dovish voice. The Governing Council will also “consider, as needed, new policy instruments in the pursuit of its price-stability objective.”

Policy makers around the world are struggling to assess the knock-on effects of Russia’s assault on its neighbor -- from sanctions to trade disruptions -- with Federal Reserve Chairman Jerome Powell on Wednesday calling the impact on the U.S. economy “highly uncertain.”

Earlier in the day, ECB Vice President Luis de Guindos said Russia’s attack would result in slower growth and faster inflation over the coming weeks. He spoke shortly after data showed euro-area consumer prices hit 5.8% in February -- almost three times the 2% target -- driven by energy costs that are only likely to rise further due to the fighting.

While a gauge that strips out the impact of energy costs also rose to 2.7%, Lane said the acceleration in so-called core inflation doesn’t just reflect underlying price pressures but also the effect of things like supply snarls. That matters because the ECB has said it won’t start raising interest rates until it sees sufficient progress in underlying inflation.

“Premature monetary tightening runs the risk of an economic slowdown and a reversal in the medium-term inflation dynamic, de-railing the prospects of ultimate convergence to the inflation target,” Lane told a virtual event in Berlin.

Indeed, earlier expectations for an announcement on bringing forward the end date for ECB asset purchases are starting to fade in the runup to the Governing Council’s meeting next week.  

Recent days have seen some officials call for time before continuing the withdrawal of support for the region’s economy. Finland’s Olli Rehn urged a “moment of reflection” before discussing when rates may be lifted from record lows, though he called the path to normalizing monetary policy “appropriate.”

Money markets have pushed back wagers on the first ECB rate increase in more than a decade, currently pricing in a hike in December 2022.

©2022 Bloomberg L.P.