Societe Generale’s Anatoli Annenkov anticipates that the European Central Bank (ECB) will keep interest rates unchanged at its upcoming meeting, citing a shift in focus towards Euro Area growth and medium-term core inflation dynamics [1]. The bank now expects the ECB to implement 25 basis point hikes in both June and September, moving these forecasts forward due to increasing concerns over core inflation [1]. Societe Generale projects core inflation to reach 2.6% in 2027, with a peak around 2.8% in the first quarter of 2027, aligning with the ECB’s adverse scenario from March [1].
The report highlights that downside risks to growth and ongoing uncertainty in the Middle East support a cautious, neutral policy stance from the ECB at this time [1]. The ECB is expected to repeat a similar outlook to its March meeting, emphasizing the adverse scenario and awaiting updated Eurosystem staff forecasts for the June 11 meeting [1]. Societe Generale notes that robust private sector balance sheets, increased demand for AI and energy investment, and German fiscal stimulus are factors that could support further rate hikes later in the year [1].
Labour market tightness, driven by demographic trends, is expected to persist and contribute to wage pressures, which may force the ECB to maintain policy at the upper end of its neutral range [1]. Additionally, government measures such as the German tax-free employer bonus could add to near-term wage growth risks [1]. Despite these pressures, Societe Generale does not currently foresee the need for more than the two hikes already projected, as the adverse scenario includes uncertain non-linearities and second-round effects based on the 2021-22 experience [1].
CONCLUSION
Societe Generale expects the ECB to maintain rates at its next meeting, with a cautious stance due to growth risks and inflation concerns. The bank anticipates 25bp hikes in June and September, but does not see the need for additional hikes at this stage. Market participants are likely to interpret the ECB’s stance as neutral, with a focus on upcoming economic data and staff forecasts.