Francesco Canepa and Balazs Koranyi

FRANKFURT – Sources told Reuters that the European Central Bank’s policymakers have not ruled out accelerating their withdrawal from bond buying, despite the uncertainty arising from the war in Ukraine. The biggest question for them is whether or to end the stimulus plan.

The ECB was almost certain that it would end bond purchases after inflation pressures increased faster than anticipated. This is despite the fact that the ECB met March 10, and the meeting had already been called off. The war in Ukraine has turned these plans on their head, forcing policymakers and others to review the future.

Six of the people who spoke to this discussion believe that a speedier exit is needed as inflation could exceed the 2% target by the ECB for the year. Even medium-term inflation can be subject to overshooting.

“Inflation has gotten higher and wider. One source told Reuters that it is not only energy but also food prices. It would be wrong not to take action on it.

Russia and Ukraine both export large amounts of grain, and conflict could lead to higher food prices.

Recent quarters’ inflation projections were notoriously wrong. Policymakers might place more weight on the current readings including the February number due next week.

A spokesperson for the ECB declined to comment. Christine Lagarde of the ECB stated that speculation about March’s decision was premature as policymakers are going to make their decisions based on available data.

High inflation, even though temporary, could cause a ripple effect in the wider economy. It can lift wages and prices as well as entrench high consumer price increases.

While the ECB expected to reduce bond buying in the coming quarters, it aimed to maintain open-ended purchases.

It is important to have an end date, though, because it will impact any interest rate rise. Indefinite purchases are also a factor in determining the time of any rate rise, as the bank indicated that there would be no rate increases before bond buying ends.

According to a second source, “One possibility would be to signify our intent to terminate the bond buying in the 3rd quarter but not make an official commitment.”

As policymakers from the dovish group argue for flexibility and optionality, this is likely to prove to be a problem.

A third source stated that “I wager the end date will become the most heated debate”, but it’s an issue still being resolved.

According to sources, the ECB should not make any promises about raising rates.

The bank also stated that policymakers were likely to reach an agreement in March regarding loosening of the connection between bond purchases and rate moves. According to the bank, bond purchases will cease “shortly” before an increase in interest rates.

Sources said that the “shortly”, may lead to undued expectations, and tie up the ECB’s hands so that it might be abandoned.