The European Central Bank (ECB) is widely anticipated to raise interest rates at its upcoming meeting on June 11, as inflation risks in the Eurozone intensify, according to MUFG's Halpenny [1]. Market participants are closely watching the ECB's forward guidance, as the likelihood of a rate hike is already largely priced in by the market [1].
Isabel Schnabel, a member of the ECB Executive Board, emphasized in South Korea that the ECB can 'no longer look through this shock,' referring to the recent energy shock, and warned that the 'risk of de-anchoring inflation expectations is rising' [1]. These remarks echo recent statements by ECB President Christine Lagarde, who highlighted the importance of maintaining credibility, which she stated is 'earned through action' [1].
Recent inflation data points to a pick-up in the euro-zone annual Consumer Price Index (CPI), with the MUFG estimate suggesting an increase from 3.0% to 3.2% in the data to be released tomorrow [1]. The OIS market indicates that, among nine G10 central banks meeting this month, the ECB and the Bank of Japan are the most likely to take action, despite ongoing uncertainty related to the conflict in the Middle East [1].
With the rate hike decision seen as nearly certain, the market's attention is shifting to the ECB's forward guidance and the potential for further rate increases [1].
CONCLUSION
The ECB is expected to raise rates at its June 11 meeting, driven by rising inflation risks and reinforced by recent statements from key officials. As the hike is already priced in, market participants are now focused on the ECB's forward guidance for clues about future policy moves. The outcome of the meeting and subsequent guidance will be pivotal for the euro and broader market sentiment.