ECB may hike rates amid inflation-recession dilemma

The European Central Bank (ECB) is expected to opt for limited rate increases, pursuing a cautious tightening path as it confronts persistent inflation pressures and a weakening growth outlook. Rising oil prices linked to Middle East tensions continue to fuel inflation globally, narrowing policy options. Higher energy costs pose particular risks to European economies, which remain heavily reliant on energy imports. Financial markets expect the ECB to raise all three key interest rates by 25 basis points on Thursday, with two additional hikes priced in before year‑end.

Analyst views

Jan‑Paul van de Kerke of ABN AMRO told Anadolu: “We expect rate rises at the June and July meetings, taking the deposit rate to 2.50%,” noting that second‑round inflation effects are likely limited and that rates can return to neutral by 2027. Marco Wagner of Commerzbank sees another 25‑basis‑point increase by September but considers a third hike unlikely. Elwin de Groot of Rabobank said the ECB is likely to revise inflation projections upward, while growth could prove weaker, adding that a stronger stagflationary shock linked to the Strait of Hormuz closure could emerge.

Cautious approach

Alain Durre of Natixis said the ECB will raise rates but expects President Lagarde to adopt a moderately dovish tone about the future path to avoid triggering expectations of a prolonged hiking cycle. “A second hike is possible between July (35%) and September (55%) conditional on the duration of the Hormuz strait blockade,” he said.