Nordea analysts Jan von Gerich and Tuuli Koivu have updated their outlook for the European Central Bank (ECB), maintaining a baseline expectation of four 25 basis point rate hikes starting in June, despite the recent news of a ceasefire in the Middle East [1]. The analysts note that while the ceasefire has introduced downside risks to their forecast, broader price pressures are emerging, suggesting that an end to the conflict does not automatically eliminate the need for ECB tightening [1].
According to Nordea, the conflict in the Middle East has been a significant trigger for expectations of near-term ECB rate hikes, but the underlying inflationary trends remain a concern [1]. Financial markets have reacted by severely reducing expectations for a rate hike as early as the April meeting, with a 25bp hike at the June meeting now fully priced in [1].
The outlook remains uncertain, with Nordea emphasizing that the ceasefire does not guarantee a shift in ECB policy, given the signs of broader price pressures already appearing [1].
CONCLUSION
Nordea continues to expect four ECB rate hikes starting in June, even after the ceasefire in the Middle East, citing persistent inflationary pressures. Market expectations for an April hike have diminished, but a June hike is fully priced in. The situation remains uncertain, with analysts stressing that the end of the conflict does not remove the need for monetary tightening.