FRANKFURT: The European Central Bank (ECB) unexpectedly accelerated its wind-down of monetary stimulus, signalling it’s more concerned about record inflation than weaker economic growth as Russia’s invasion of Ukraine threatens to propel prices even higher.

       Calling the war a “watershed” moment for Europe, ECB officials pledged to slow bond buying from the start of May, and said they could halt the programme as soon as the third quarter.

       They tried to temper that by making a subsequent interest-rate hike less automatic.

       “The Governing Council sees it as increasingly likely that inflation will stabilise at its 2% target over the medium term,” President Christine Lagarde, who wore a badge with the colors of the Ukrainian flag on her jacket, told reporters in Frankfurt.

       “The war in Ukraine is a substantial upside risk, especially to energy prices.”

       The outcome defied the expectations of economists who anticipated a delay in major policy decisions to allow time to assess the implications of Russia’s attack.

       Some Governing Council members had also indicated that plans to end large-scale asset purchases and negative interest rates would probably be postponed.

       The euro fell by 0.7% on the day to US$1.0996 (RM4.61). Italian bonds tumbled, sending the yield on 10-year securities up 24 basis points to 1.915%.

       Investors took the more rapid withdrawal of asset purchases as a sign that rate rises are nearing, with money markets now betting on a quarter-point increase in October, compared with December earlier.

       They see two more hikes in the first half of 2023, taking the key rate to 0.25%.

       While the Governing Council no longer suggests interest rates could go “lower” than at present, it also now says any hikes will be “gradual” and take place “some time after” bond purchases end rather than “shortly” after.

       “Clearly ‘some time after’ is all-encompassing,” Lagarde said. “It can be the week after, but it can be months later.

       “By that, I think we want to indicate that the time horizon is not what’s going to matter most. It’s the data that will support the decision.”

       A hike this year would still leave the ECB behind some of its major peers in taking on inflation.

       The Bank of Canada raised rates last week and predicts its balance sheet will shrink quickly once it starts running off its bond holdings.

       At the Federal Reserve, lift-off is all but certain next week, when the Bank of England is widely expected to lift borrowing costs for a third straight meeting. — Bloomberg