Third, we adjusted what has come to be known as our “chained forward guidance”. Indeed, in recent months the Governing Council had been explicitly stating its expectation that net purchases would end shortly before it starts raising policy interest rates. However, in our meeting last week, we agreed that any adjustments to the key ECB interest rates will be take place some time after the end of our net purchases under the APP and will be gradual. The change from “shortly before” to “some time after” maintains the sequential process we intend to follow in adjusting our instruments, but widens the possible time interval between these two events (the end of net purchases and the point at which we start raising our interest rates). This increases the flexibility with which we can implement our decisions in such an uncertain economic and geopolitical context. The gradual adjustment of interest rates is indicative of the Governing Council’s commitment to avoiding abrupt changes to monetary policy instruments. 6  Domestic policies Domestic economic policies must also have a vital role to play at the current juncture. First, it is important for domestic fiscal policy to exploit its ability to act in a very granular and targeted manner and to focus on supporting the households, businesses and sectors most affected by this combination of shocks. This includes particularly lowerincome households, which bear the brunt of the impact of inflation, and more energyintensive firms.
For the rest of the year, assuming a gradual improvement in the COVID-19 situation, further progress in the recovery was expected, underpinned by a decline in uncertainty, the gradual disappearance of bottlenecks, the maintenance of favourable financing conditions and, in Europe, the gradual implementation of the Next Generation EU (NGEU) programme. As regards inflation, the data in the first two months of the year had continued to surprise on the upside compared, for example, with the projections made in late 2021. 1  The possible economic consequences of the conflict  The Russian invasion of Ukraine, on 24 February, and the western world’s response, which has led to the imposition of unprecedented economic sanctions on Moscow, represent a new and foreseeably hugely significant shock, with adverse consequences in terms of a weaker economic performance and greater inflationary pressures. To assess the scale of these effects, it is helpful to describe the different channels through which this new shock will affect the global economic outlook:  i. Energy and non-energy commodities. One first economic impact of the invasion of Ukraine stems from the fact that Russia and, to a lesser extent, Ukraine, are among the world’s main producers of certain energy and non-energy commodities, and that Europe is highly dependent on imports of some of these products, especially oil and gas from Russia, but also cereals from Ukraine.1  The price of many of these commodities has already risen significantly as a result of the conflict.