ECB Eyes Rate Hikes Amid Energy Disruptions

(MENAFN) Growing geopolitical turbulence stemming from the Middle East conflict is forcing the European Central Bank to reassess its monetary policy trajectory, with leading economists warning that sustained energy market disruptions could compel policymakers to resume interest rate increases.

While the ECB is broadly expected to hold borrowing costs steady in the near term, analysts are increasingly focused on the Strait of Hormuz standoff, swinging oil and gas prices, and the mounting threat these factors pose to the eurozone's inflation outlook. Should energy costs remain elevated, the bloc's ongoing disinflation progress risks going into reverse — potentially pushing the ECB off its current policy path.

Peter Vanden Houte, chief economist at ING Group, told media that governing council members see no immediate trigger for action ahead of April's decision, though the risk picture is darkening. He pointed to April's Purchasing Managers' Index (PMI) survey, which revealed producer price inflation climbed to its steepest level in 37 months despite decelerating economic growth.

"This is important, as ECB President (Christine) Lagarde stated during the March press conference that the ECB would be particularly attentive to selling price expectations of firms, so the markets will be very attentive for any hints on the ECB's perception of future inflation risks," he said. "Even with stability now, the probability of a rate hike later this year, has clearly increased."

Houte also flagged the possibility of a 50 basis point rate increase before the year closes.

At Rabobank, senior macro strategist Bas van Geffen told media that a temporary lull in energy markets has reduced the urgency for an immediate ECB move, with the deposit rate expected to remain anchored at 2% this month. However, he cautioned that any effective closure of the Strait of Hormuz could deliver a fresh cost shock severe enough to revive the case for tightening.

"Our own forecasts for energy prices, growth and inflation, are comparable to the ECB's adverse scenario," he said. "This probably warrants one or two rate hikes. We have penciled in a hike for June, when the ECB gets updated forecasts."

Jan-Paul van de Kerke, senior eurozone economist at ABN AMRO, told media that ECB officials have already begun tilting toward a tighter policy stance to cushion the blow to growth. He argued that the inflationary surge this time around would prove more contained relative to prior episodes, forecasting rate hikes in both June and July that would lift the deposit rate to 2.5%.

Alain Durre, head of European macro research at Natixis, said the bank would closely track energy price movements, market-derived inflation expectations, and broader financial tightening conditions before committing to action.

"Given the weak growth momentum, and assuming the war concludes by June, our baseline scenario is for a 25 bp (basis points) rate hike at the upcoming June meeting — we then expect the ECB to hold rates steady for the remainder of 2026, thereby maintaining a neutral monetary policy stance," he said. "During the press conference, we expect President Lagarde to adopt a rather hawkish tone to contain inflation expectations."

Marco Wagner, senior economist at Commerzbank, told media that a rate hike remains firmly in play, particularly if elevated energy prices begin feeding into broader price pressures across the economy.

"We still consider an interest rate hike in June to be likely, especially if the stalemate around the Strait of Hormuz continues," he said.

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