Danske Bank's research team anticipates that the European Central Bank (ECB) will maintain the deposit rate at 2.00% during its current meeting, aligning with both consensus and market expectations [1]. The ECB is expected to keep its policy stance flexible, with President Lagarde likely to leave the option open for potential rate hikes in the summer to help anchor inflation expectations, while avoiding any firm commitments at this stage [1].
Danske Bank forecasts that the ECB will implement 25 basis point rate hikes in both June and July, reflecting a tightening bias despite the current pause [1]. The bank projects that the Euro Area Harmonised Indices of Consumer Prices (HICP) will rise to 2.8–2.9% year-on-year, with core inflation expected to ease to 2.2% year-on-year [1]. Recent data from Germany and Spain indicate no significant changes in the monthly momentum of core inflation, suggesting that only the initial effects of the recent oil shock are being observed, which supports the ECB's cautious 'wait and see' approach [1].
Additionally, Danske Bank expects the flash estimate for Euro Area Q1 GDP to show a 0.3% quarter-on-quarter increase, consistent with the ECB's baseline and adverse scenarios [1]. The March unemployment rate is forecast to remain steady at 6.2%, with no anticipated impact from the conflict in Iran [1]. On the strategy front, Danske Bank favors positioning for lower short-end swap rates, citing the negative growth effects stemming from the recent supply shock [1].
CONCLUSION
The ECB is widely expected to keep rates unchanged for now but may signal possible hikes in the summer to address persistent inflation. Market participants are likely to focus on forward guidance and inflation data, with Danske Bank highlighting a cautious approach amid ongoing supply shocks and stable unemployment. The overall market impact is medium, as the ECB maintains flexibility while inflation remains above target.