ECB may switch to rate hikes by 2027, ending cutting cycle, experts say
While the European Central Bank is expected to hold interest rates steady at its December meeting, financial experts now anticipate a possible pivot to gradual rate increases in 2027. This shift in outlook follows stronger-than-expected economic data and concerns about persistent inflation in the eurozone.
Financial analysts are forecasting a significant shift in monetary policy for the European Central Bank, with expectations now turning toward potential interest rate hikes in the medium term rather than further cuts. The consensus suggests the ECB's recent rate-cutting cycle has largely concluded, with the bank poised to hold rates steady through 2026 before a possible tightening move in early 2027.
Policy Pivot Driven by Growth and Inflation Concerns
The changing outlook stems from recent eurozone data showing upside risks to economic growth and potential for inflation to climb higher. ECB Executive Board member Isabel Schnabel signaled this shift earlier this month, suggesting in a Bloomberg News interview that the next policy move could be a hike rather than a cut. This reflects growing concerns among some policymakers that structural factors, including government fiscal packages and increased defense spending, could fuel price pressures.
Analyst Projections: A Long Hold Followed by Gradual Hikes
Senior analysts from major European banks have detailed their projections. Bas van Geffen, senior macro strategist at Rabobank, told Anadolu that his institution has "penciled in two rate hikes, in March 2027 and June 2027," contingent on the eurozone economy gaining momentum. He expects the ECB to upgrade its growth forecasts but does not anticipate President Christine Lagarde to explicitly declare the cutting cycle over at the upcoming meeting.
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Diverging Views on Inflation and the Near-Term Path
Not all forecasts align perfectly. Marco Wagner, senior economist at Commerzbank, noted that while he shares Schnabel's medium-term inflation concerns, official ECB staff projections might show inflation falling below the 2% target in 2026 and 2027. This could support an argument for keeping rates at their current level for an extended period. Wagner's main scenario sees the ECB's key interest rates "remain at their current level over the next two years," with hikes becoming a possibility only thereafter.
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