By Marta Vilar – MADRID (Econostream) – Econostream’s ECB Tone Meter showed a notable shift in tone this week, with both the Governing Council and the Executive Board moving into what we classify as ‘slightly hawkish’ territory.
The Governing Council index rose to +0.67 from +0.27, while the Executive Board index increased to +0.52 from +0.01, leaving both above the +0.5 threshold that marks the beginning of "slightly hawkish" territory in our ECB Tone Meter.
This week policymakers more frequently outlined scenarios that could justify a rate hike at the next meeting, including Executive Board members, who had previously been relatively quiet about next steps.
Biggest Movers of the Week: Lagarde, Schnabel, Nagel and Villeroy
Among all Governing Council members, Latvijas Banka Governor Mārtiņš Kazāks and Deutsche Bundesbank President Joachim Nagel recorded the most hawkish scores of the week.
Kazāks said in an interview with Econostream that market expectations of two rate hikes were “plausible,” adding that delivering only one hike would amount to a “lucky coincidence.”
Nagel, for his part, moderated his language compared with last Friday—when he said an April hike would “probably be necessary” if certain “conceivable” conditions materialized—but reiterated that April is “certainly” an option, albeit “just one option.” However, his warning that inflation risks are rising day by day was the key element that ultimately gave his overall message a more hawkish tilt.
ECB President Christine Lagarde also contributed significantly to the shift of both indexes, delivering several interventions throughout the week that grew progressively more hawkish.
Initially, she warned that the conflict could generate “ripple effects” within months. She then outlined scenarios under which policy action might be warranted—making clear that any response would remain conditional rather than signalling an imminent move—and in her latest remarks struck a more cautionary tone, suggesting the impact of the conflict could persist for years and that expectations of a swift return to normal are “overly optimistic.”
Less hawkish than might have been expected, ECB Executive Board member Isabel Schnabel said that the central bank should avoid overreacting and should not “rush into action.”
Meanwhile, Banque de France Governor François Villeroy—traditionally one of the ECB’s more dovish voices—also signaled readiness to act if necessary, while cautioning that markets may have “overinterpreted” the timing of the next rate hike.
Dominant Themes in this Week’s Communication: Caution About Second-Round Effects
Concerns about potential second-round effects arising from the conflict featured prominently in this week’s communication.
In an interview with Econostream, Eesti Pank Governor Madis Müller said he was “already reasonably confident” that such effects were likely to materialize, which in his view would warrant policy action. He also noted that some indirect effects are already becoming visible.
Similarly, National Bank of Belgium Governor Pierre Wunsch emphasized that “significant” second-round effects would be a key factor in determining whether monetary policy tightening is needed.
Villeroy warned that the ECB must remain “extremely vigilant” on this front, while ECB Vice President Luis de Guindos described second-round effects as a primary concern, noting that their scale would largely depend on how inflation expectations evolve.