DBS forecasts a pre-emptive ECB rate hike to 2.25% amid US-Iran tensions and downgraded Eurozone growth outlook.
The European Central Bank is expected to raise its deposit rate by 25bps to 2.25% at its June 11 meeting, driven by stagflation risks from US-Iran tensions. DBS Group Research cites Europe’s greater vulnerability to the shock compared to the US.
Analysts anticipate cautious guidance and potential further hikes in the second half of the year. The ECB may adopt a meeting-to-meeting approach, monitoring geopolitical developments, including the likelihood of a ceasefire. Growth forecasts for 2026 have been downgraded to 1.0% from 1.4%, while inflation projections are revised upward.
The baseline forecast assumes $90 per barrel oil and EUR50 per MWh gas prices in the second quarter of 2026, with scenarios outlined for adverse and severe conditions.