Commerzbank economists Dr. Jörg Krämer and Bernd Weidensteiner anticipate that the European Central Bank (ECB) will keep interest rates unchanged at its upcoming meeting, but they project a likely rate hike in June if the Strait of Hormuz remains blocked and inflation risks persist [1]. The analysts point to rising input and selling prices reflected in PMI data, gradually increasing consumer inflation expectations, and potential wage pressures as key factors contributing to inflationary risks [1].
Despite these inflation concerns, Commerzbank notes that weak growth indicators could limit the ECB's overall tightening path [1]. The bank highlights that while the ECB is expected to monitor second-round effects that could drive inflation over the long term, a rate hike is not entirely off the table if these risks materialize [1].
Commerzbank's forecast is more cautious than market expectations, which anticipate roughly two and a half rate hikes by the end of the year. The economists believe that, given the current environment and the dominance of dovish members on the ECB Governing Council, there is unlikely to be more than one rate hike, especially as oil prices are expected to fall once the war ends [1].
ECB President Christine Lagarde has previously cited several indicators that the central bank will be monitoring, some of which point to increased inflation risks, while others suggest downside risks for inflation [1].
CONCLUSION
Commerzbank expects the ECB to raise interest rates in June if inflation risks persist and the Strait of Hormuz remains blocked, but sees limited scope for further hikes due to weak growth and dovish sentiment within the ECB. Market expectations for multiple hikes may be overly optimistic given these constraints.