European central bank shifts tone to hawkish stance

By Ovunc Kutlu

ANKARA (AA) – The European Central Bank (ECB) has shifted its tone to a hawkish stance amid rising inflation, signaling a possible interest rate increase in coming months.

"On this basis it was argued that, for all practical purposes, the three forward guidance conditions for an upward adjustment of the key ECB interest rates had either already been met or were very close to being met," said the ECB's account released on Thursday.

The timing of the first rate hike will be determined by incoming macroeconomic data and financial market conditions, according to the minutes from the ECB's monetary policy meeting that took place on March 9-10.

The bank also said the Russia-Ukraine war "constituted a stagflationary shock, which entailed weaker activity and higher inflation in the near term.

"At the same time, weaker activity in the second and third quarters of this year could nonetheless result in a technical recession in terms of quarter-on-quarter growth rates."

The ECB added that fiscal response would also be important to achieve a favorable outcome for the economy.

Stagflation is observed in an economy when there is high inflation, high unemployment, and slow or negative economic growth.