Here are the key takeaways from ECB’s Kazaks on the policy outlook:
A negative economic shock would make a rate cut more likely than an equal positive shock would justify a hike.
The ECB must closely monitor ETS 2 because its inflation impact is “of significant magnitude.”
Current data do not “warrant a strong discussion on changing the policy rates.”
Policymakers should focus more on 2026 and 2027 forecasts when shaping decisions.
Targeting an uncertain outlook three years ahead “would not make sense.”
Markets have “a good understanding” of the ECB’s reaction function.
What is ETS 2?
ETS 2 stands for Emissions Trading System.
ETS 2 Overview: A new Emissions Trading System, referred to as ETS 2, is planned for the road transport and buildings sectors and is scheduled to commence in 2027.
ECB on Climate Risks: The ECB is actively incorporating climate-related and environmental risks into its supervisory priorities. It acknowledges that it must use its available tools to mitigate the risks climate change poses to both price stability and financial stability.
ECB on Carbon Pricing: ECB Executive Board member Frank Elderson has stated that carbon pricing is a "key tool" in the transition to a Paris-aligned economy.
