The European Central Bank is moving toward raising interest rates in June, as inflation accelerates this year due to the repercussions of the war with Iran, according to a Bloomberg survey.
The increase is expected to be around 0.25 percentage points and likely the only hike this year, as the conflict is not anticipated to have a lasting impact on prices, based on the survey conducted between April 9 and 15.
Regarding inflation in the European Union, it is projected to rise to 2.8% in 2026, up from a previous estimate of 2%, before gradually declining to 2.1% in 2027 and then to 2% in 2028, aligning with the ECB’s target.
At present, ECB officials are inclined to keep interest rates unchanged at the end-of-April meeting, according to informed sources, although some—such as German central bank president Joachim Nagel—do not rule out the possibility of taking action.
As for market expectations, economists had previously anticipated that the ECB would ignore the impact of the war, but investors are now pricing in a stronger response, with the possibility of two rate hikes this year.
The war in the Middle East, along with rising energy costs, has placed the ECB in a difficult position, as higher borrowing costs could hinder the fragile economic recovery in the euro area, which consists of 21 countries.
In terms of growth, analysts expect the region’s economy to expand by only 0.9% in 2026, down from a previous estimate of 1.2%, due to pressure from higher energy prices on businesses and households. Growth is then expected to improve to 1.3% in 2027 and 1.4% in 2028.
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