ECB to Hike in June Before Reversing Course in 2027, Poll Shows

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(Bloomberg) — The European Central Bank will respond to the Iran war by raising interest rates once — in June — before reversing the move next year to protect economic growth, analysts say.

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All but one respondent in a Bloomberg survey sees the ECB keeping its deposit rate unchanged at 2% on April 30, but lifting it by a quarter-point at the following meeting as new projections offer a better picture of the conflict’s economic consequences.

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Half of those predicting a June hike also expect at least one cut by end-2027. A median estimate shows the deposit rate back at 2% in September of that year.

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Chief Economist Philip Lane and others say they’re unlikely to receive sufficient information this month to determine whether soaring oil and natural gas costs have meaningfully shifted the inflation expectations of households and firms. At the same time, they stress that they’re closely tracking such signals and will act if needed.

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“It’s difficult to foresee the evolution of the conflict itself and the development of energy prices,” Dekabank economist Kristian Toedtmann said. “But it’s also hard to imagine that indirect and second-round effects on inflation will be so mild that the ECB can look through these fluctuations.”

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Consumer prices surged an annual 2.6% in March — the most since mid-2024. Selling-price expectations and inflation fears are also on the rise.

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While markets are almost fully convinced the ECB will stand pat next week, they’re still pricing two quarter-point hikes this year. Just over a third of survey respondents agree.

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Dennis Shen, a lecturer at TU Berlin’s International School of Management who only foresees one move, says that after steep pay gains during the last inflation shock, the ECB’s threshold may be lower than it appears. 

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“It doesn’t require proof of a wage spiral — it only needs a credible risk of one,” he said. “A 25 basis-point ‘insurance hike’ fits that playbook: cautious in size, but decisive in signal.”

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That would fit an argument President Christine Lagarde made last month, suggesting the ECB couldn’t leave an inflation overshoot entirely unaddressed. “The public may find it difficult to understand a reaction function that does not react,” she said.

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What Bloomberg Economics Says…

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“The ECB likely still sees the inflation overshoot as warranting some monetary tightening this year. We retain our call for a hike in June, although it remains contingent on a scenario of persistently elevated commodity prices, as in our baseline.”

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—David Powell and Simona Delle Chiaie. Click here for full PREVIEW

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The ECB feels “compelled to tighten” because the damage for inflation is already done, said Arne Petimezas, an analyst at AFS Interest. “The economic damage, including from tightening, will come on more gradually, forcing rate cuts next year.”