The European Central Bank (ECB) is anticipated to continue its rate hiking cycle in response to ongoing inflationary pressures and recent economic data revisions. According to Nomura analysts, the ECB's June macroeconomic projections are expected to incorporate higher market rate assumptions, with forecasts for Harmonised Indices of Consumer Prices (HICP) and core HICP inflation revised between previous baseline and adverse scenarios. GDP growth projections for 2026 and 2027 are likely to be nudged lower due to weaker Q1 data and mechanical effects, while inflation is still seen around target in Q4 2028 [1].
Nordea's Kristian Nummelin expects the ECB to hike rates next week, citing elevated inflation and strong core momentum as key drivers. Nordea's baseline scenario anticipates four ECB hikes in total, taking rates to 3%, although a weaker growth outlook could shorten the cycle. Markets are reportedly pricing in a similar outcome, with the latest inflation figures showing strong monthly core inflation momentum and visible price pressures in the service sector [2].
TD Securities forecasts the ECB will raise its deposit rate to 2.25% in response to persistently high energy prices, aiming to reinforce the central bank's inflation-fighting credibility and anchor expectations. The ECB is expected to maintain a data-dependent, meeting-by-meeting approach, preserving flexibility for future decisions based on updated projections. The euro area Q1 GDP was revised down to -0.2% quarter-on-quarter, primarily due to a significant revision in Irish GDP, which dropped from -2.0% to -12.1% quarter-on-quarter. However, TD Securities notes this was driven by the volatile multinational sector and is likely to be reversed in the next quarter. As such, the ECB is expected to look through this negative GDP revision at their upcoming meeting, as it does not accurately represent regional fundamentals [3].
There is a consensus among analysts that the ECB faces greater urgency to act compared to the US Federal Reserve, with inflation remaining a central concern. However, the duration and extent of the hiking cycle may be influenced by the evolving growth outlook, as surveys indicate softening sentiment despite hard data holding up better [2].
CONCLUSION
The ECB is widely expected to continue raising rates in the near term to address persistent inflation, despite recent downward revisions to euro area growth forecasts. While the central bank is likely to maintain a flexible, data-dependent approach, market participants anticipate further hikes, with the ultimate path dependent on future economic developments.