Sources indicate a June 11 rate increase is nearly certain, though weak growth may delay further tightening until September.
The European Central Bank is set to raise interest rates by 25 basis points at its June 11 meeting, with sources describing the decision as all but final. Inflation at 3%, well above the 2% target, and the need to maintain policy credibility are driving the move, even as growth concerns persist.
Markets have priced in three hikes over the next year, though the ECB is expected to push back against expectations of a July follow-up. Analysts at Deutsche Bank forecast additional quarter-point increases in September, lifting the policy rate to 2.50%, the upper end of the neutral range.
Weak economic growth is cited as the primary reason for caution, with some sources suggesting the ECB’s own projections may be overly optimistic. Even a potential peace agreement before the June meeting would not eliminate the case for hiking, given the lag in energy price normalization.