Nordea expects four consecutive 25bp ECB rate increases starting June, prioritizing inflation over softer economic data.
The European Central Bank is poised to deliver a 25 basis-point rate hike in June, with markets pricing in further tightening despite downside growth risks and geopolitical uncertainty. Inflation concerns, including rising pipeline price pressures and inflation expectations, outweigh weaker sentiment and lending data, according to recent analysis.
Recent ECB communications highlight increased upside risks to inflation and downside risks to growth, though the central bank remains focused on price stability. Tighter lending standards and weakening loan demand, as reported in the ECB’s bank lending survey, have not deterred the hawkish bias. However, the ECB’s data-dependent approach leaves room for policy shifts if incoming data or Middle East developments materially change the outlook.
While softer energy prices or a swift resolution to geopolitical tensions could ease inflationary pressures, underlying price dynamics suggest the ECB may proceed with its planned tightening cycle. Markets are closely watching for signals on the pace and duration of further hikes.