How will the ECB react to a further energy shock?

An energy shock is unlikely to elicit a dovish policy response; this cycle is very different from other cycles seen since the creation of the Euro.

It is a reasonable assumption that Russia is tracking gas inventories in Europe and will continue to minimise flows as the year continues, both in response to a possible price cap by Europe (to keep revenues unchanged) and to maintain pressure on the EU to lift sanctions as the war in Ukraine progresses.

With a further energy shock therefore a strong possibility, it is reasonable to ask how the ECB might react to such a deteriorating outlook.

We here review their likely thinking.

What have ECB speakers said?

Public comments by key ECB policymakers about how they will (likely) react to an energy shock already point to an unchanged-to-hawkish reaction for further energy shocks. Indeed, back in February, before the Ukraine invasion happened, and when the impact on energy prices was uncertain, Isabel Schnabel outlined in an interview