Banks eye three ECB rate hikes this year as former Governor says he sees no stagflation — yet
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Brokers now expect the ECB to hike interest rates this year as the specter of higher inflation and lower growth piles pressure on central banks to act.
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Brokers now forecast multiple European Central Bank interest rate hikes this year as the specter of higher inflation and lower growth piles pressure on central banks to act. J.P. Morgan, Morgan Stanley and Barclays all revised their forecasts on Thursday to anticipate future hikes after ECB President Christine Lagarde warned of a "significantly more uncertain" outlook with risks to inflation. As expected, the ECB held its key interest rate at 2% and remained noncommittal on future decisions, but analysts are taking a more hawkish tone. Barclays and J.P. Morgan expect as many as three rate hikes of 25 basis points each this year, with the banks penciling in increases in April, June and July, Reuters reported. This is a marked shift away from forecasts of unchanged rates for 2026 and would bring the ECB's deposit rate to 2.75% by year-end. Morgan Stanley expects ECB hikes at the bank's June and September meetings, taking the rate to 2.5%. Investors are scouring for hawkish clues in policymaker rhetoric. Bundesbank President Joachim Nagel's interview with Bloomberg News on Friday pointed to a potential April rate hike if the war continues and inflation reappears. "As things currently stand, it is conceivable that the medium-term inflation outlook could deteriorate and inflation expectations could rise on a sustained basis, meaning that a more restrictive monetary policy stance would probably be necessary," Nagel told Bloomberg. Markets are currently pricing in around a 50% chance of an ECB hike in April, according to LSEG data. For a hike in June, that probability rises to 80%. Others are calling for calm. Former ECB President Jean-Claude Trichet told CNBC's Europe Early Edition on Friday that the ECB is "very wise" to make a decision meeting-by-meeting, to assess the full facts. He also disagreed with the notion that Europe is reaching a point of stagflation, telling CNBC that the drop in growth is not yet "dramatic". UBS economists expect the ECB to keep rates unchan...
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