European Central Bank: When Is the Next Hike?

The ECB held hiked rates by 25 bps steady as expected, acknowledging that upside risks to inflation have intensified. Core inflation forecast was revised higher for 2026 from 2.3% to 2.5%, and 2027 from 2.2% to 2.5%. The key message is that the energy shock is now seen as more persistent, feeding more decisively into underlying inflation and delaying convergence to target.

Rate adjustments are not a hike cycle. The ECB has previously signaled that acting early will avoid larger rate hikes in the future. We expect President Lagarde to emphasize in the press conference that they remain data dependent and that there is no preset rate path, meaning markets should not rule out a July move. We expect one more rate hike this year but are leaning towards September rather than July.

The ECB’s proactive approach should not be seen as a template for other central banks. While every economy is facing the same energy price shock, monetary authorities face different initial conditions at home. The labour market in the euro area is relatively tight compared to the UK and Canada, while memories of a more severe inflation fallout in 2022 are still fresh.