ECB Likely to Hike by 25bp in June, Possibly Only Once This Year, Economists Survey Shows

Gate News message, April 17 — Economists surveyed from April 9-15 expect the European Central Bank (ECB) to raise interest rates by 25 basis points in June 2026, with this likely being the only rate hike of the year. The main driver is surging energy prices due to the Iran conflict, which has pushed 2026 inflation expectations to 2.8%, up from a prior forecast of 2%. Economists believe the conflict will not cause long-term price pressures.

Economists predict inflation will moderate to 2.1% in 2026 and further decline to 2% in 2027, aligning with the ECB’s target. Eurozone economic growth is forecast at just 0.9% in 2026, down from a prior estimate of 1.2%, due to energy price impacts on businesses and households. Growth is expected to gradually recover to 1.3%-1.4% in 2027-2028.

The ECB will hold its policy meeting on April 29-30. Officials currently lean toward keeping rates unchanged, though a rate hike cannot be ruled out given the rapidly shifting geopolitical environment. ECB Governing Council member and Bundesbank President Nagel stated today that signaling a clear future rate path before the April decision would be premature, as policymakers lack sufficient information to determine whether rising energy costs will sustain high inflation long-term. He emphasized maintaining policy flexibility: “It would be inappropriate to claim now which direction rates will move. I am not prepared to make commitments in advance.” Nagel warned that market sentiment is overly optimistic, assuming lasting Middle East peace and falling energy prices. Bank of Estonia Governor Muller said a rate hike in April “cannot be excluded” if energy prices remain elevated. In contrast, Banque de France Governor Villeroy stated “it is too early to bet on an April hike,” while Slovenia’s central bank chief Dolenc indicated no rate increase would occur under the baseline scenario of a temporary supply shock.

Market pricing for an April hike has swung dramatically: probabilities exceeded 60% in late March but fell to just 12% by April 17. The market still prices two 25bp hikes for 2026 (July and year-end). The ECB faces a classic policy dilemma: not hiking risks unanchoring inflation expectations, while tightening could derail the fragile eurozone recovery. Core inflation has actually declined to 2.3%, suggesting rate hikes would have limited effect on supply-driven price pressures while directly harming weak demand. Additionally, higher rates would increase debt servicing burdens for high-debt southern European nations, risking renewed sovereign debt concerns.