Both Societe Generale and Danske Bank expect the European Central Bank (ECB) to implement a 25 basis point (bp) rate hike from a neutral stance, with Societe Generale describing it as a risk-dependent, pre-emptive insurance hike, and Danske Bank specifying that the deposit rate will rise to 2.25% on June 11, aligning with market pricing and consensus [1][2]. Societe Generale anticipates at least two rate hikes this year, likely in June and September, while markets are pricing nearly three hikes. Danske Bank also sees arguments for two hikes this year, with another 25bp hike expected in Q3 [1][2].
Updated ECB staff projections are expected to reflect higher core inflation forecasts. Societe Generale suggests core inflation could reach 2.5% in 2027, while Danske Bank expects the 2026 inflation forecast to rise to 2.9% year-on-year (from 2.6%) and the 2027 forecast to 2.2% year-on-year (from 2.0%) [1][2]. Both sources note downside risks to GDP growth, with Danske Bank highlighting recent negative surprises in Q1 GDP and Q2 survey indicators. Danske Bank expects the 2026 GDP growth forecast to be revised down to 0.6% year-on-year (from 0.9%) and 2027 to 1.2% year-on-year (from 1.3%) [2].
Societe Generale emphasizes the ECB's data-dependency and the trade-offs of early action, noting that a strong adverse growth impact could potentially lead to a policy reversal. The bank also warns that hawkish communication may raise rate expectations, which the ECB would prefer to avoid given high uncertainty [1]. Danske Bank points to upside surprises in core inflation and higher oil futures as key drivers for the rate hikes, and prefers lower short-end swap rates despite the expected tightening [2].
Both sources highlight uncertainty regarding external factors such as oil prices and geopolitical risks, particularly the situation in Iran and the Strait of Hormuz, which could influence future ECB decisions. Societe Generale notes that if ECB governors prioritize the risk of falling behind the curve, there may be little resistance to current market pricing for short-term rates, suggesting nearly three hikes this year [1].
CONCLUSION
The ECB is expected to deliver at least two 25bp rate hikes this year, driven by persistent inflation risks and weaker growth outlooks, with updated staff projections likely to reflect higher inflation and lower GDP growth. Market sentiment remains cautious due to uncertainty around external factors and the potential for policy reversal if growth deteriorates further. Overall, the anticipated rate hikes signal a high market impact, with investors closely watching ECB communication and projections.