On Monday, ECB President Christine Lagarde said that euro zone inflation risks are on the rise but price pressures could still subside before becoming entrenched in expectations.
Pointing to rising inflation risks last week, Lagarde indicated that the central bank was ready to consider a rate hike this year. A meeting scheduled on March 10 will be crucial in deciding how quickly the regulator will taper its long-running bond buying program.
As Lagarde told the European Parliament's Committee on Economic and Monetary Affairs, current conditions in the euro area "do not show the same signs of overheating that can be observed in other major economies." This increases the likelihood that the current price pressures will subside, enabling the regulator to reach its 2% target in the medium term.
While the ECB President has not announced any decision, several policymakers argued that the first step will be to speed up an exit from the bond buying scheme. The program was intended to last indefinitely but later it was planned to run at least until October.
A rate hike could only come after this stage. At the same time, a quicker pace of tapering could mean a faster raise in the key rate. This is likely to happen before the end of the year.
Markets predict a rise of 50 basis points.
