Societe Generale analysts commented on the latest Reuters European Central Bank (ECB) poll, which revealed a shift in economist expectations regarding potential rate hikes. The number of economists forecasting at least one rate increase this year rose to 21 from just 3 in March. However, a majority—39 out of 60, or 65%—still do not expect the ECB to raise rates, despite recent repricing in the money market curve over the past three weeks [1].
ECB President Christine Lagarde signaled that the bank is prepared to raise rates at any meeting if inflation pressures from the Iran conflict intensify. She emphasized that it is still too early to act, as policymakers are currently assessing the scale and persistence of the energy-driven price shock. Lagarde also noted that the ECB cannot directly influence energy prices and will instead monitor spillovers to core inflation, wages, and price expectations [1].
Bundesbank President Nagel contributed hawkish remarks, which added to bear flattening momentum in the 2s/10s and 5s/30s yield curves. Spreads have essentially reversed to levels seen last March, when Germany loosened its fiscal constraints and announced increased spending in defense and security. The 5y5y inflation swap closed yesterday at 2.12%, marking the lowest level since March 4 [1].
While the ECB is keeping its policy options open, the majority of economists remain cautious, reflecting uncertainty about the persistence of inflation and the impact of geopolitical events on energy prices. The market has responded with notable shifts in yield curves and inflation swaps, indicating heightened sensitivity to policy signals and external shocks [1].
CONCLUSION
The ECB is signaling flexibility in its policy stance, with readiness to hike rates if inflation pressures escalate, particularly from geopolitical events. However, most economists remain unconvinced that a rate increase will occur this year, and market reactions reflect ongoing uncertainty. Investors should monitor developments in energy prices and inflation expectations for further clues on ECB policy direction.