Nordea analysts Jan von Gerich, Tuuli Koivu, and Anders Svendsen expect the European Central Bank (ECB) to prioritize inflation over growth as the Middle East conflict persists and broader price pressures intensify [1]. The analysts forecast four 25 basis point (bp) rate hikes beginning in June, which would bring the ECB deposit rate to 3% by October. They anticipate that rates will remain at this level through the end of 2027, with risks skewed towards earlier or larger moves depending on developments in the conflict and energy prices [1].
Nordea's baseline scenario suggests the ECB will start raising rates by 25bp at the June meeting, followed by consecutive 25bp hikes at subsequent meetings, totaling four hikes this year [1]. The analysts note that if the ECB becomes more concerned about the price outlook, it could initiate rate hikes as early as April or opt for a larger increase in June, but they currently view a 25bp hike as the most likely initial step [1].
The timing of the first hike is said to depend heavily on the evolution of the Middle East conflict and energy prices, while the number and pace of subsequent hikes will be influenced by broader price pressures and the performance of the economy amid higher energy prices, elevated uncertainty, and rising rates [1].
No specific market reactions or analyst opinions beyond Nordea's forecast are mentioned in the article. The focus remains on the ECB's expected response to inflation and the external risks posed by geopolitical tensions and energy costs [1].
CONCLUSION
Nordea projects a front-loaded ECB rate hike cycle, with four 25bp increases starting in June and a deposit rate of 3% maintained through 2027, driven by inflation concerns and ongoing geopolitical risks. The forecast underscores the ECB's shift towards prioritizing price stability over growth, with potential for earlier or larger hikes if inflationary pressures intensify. Market participants should prepare for a sustained period of higher rates as the ECB responds to evolving economic and geopolitical challenges.