One of the first big market bets to emerge from the Russian invasion of Ukraine was that central banks would take fright.
A massive rally in government bonds – in the UK’s case, the biggest since the EU referendum in 2016 – was a clear sign that investors thought they would take this opportunity to slow or delay the process of jacking up interest rates.
Not so fast. On Thursday, the European Central Bank concluded its regular two-day rate setting meeting and indicated it would stick to its hawkish path. All things are relative – this was hawkish only for a central bank that has its main interest rate wedged below zero per cent. But it scaled back its bond-buying stimulus scheme and said net purchases could stop in the third quarter if the war in Ukraine keeps bumping up inflation expectations. The first rate rise in over a decade could still come this year.