By Indradip Ghosh
BENGALURU, March 25 (Reuters) – The European Central Bank is still expected to hold interest rates steady in 2026, a Reuters poll of economists showed, although over a third now forecast at least one hike this year as a war-driven energy shock has pushed up inflation forecasts.
That broadly steady consensus view contrasts with financial market bets on around three hikes by year-end after the U.S.-Israeli war with Iran and blockade of a key transport corridor sent oil prices surging about 40%, forcing major inflation upgrades.
After holding rates last week, ECB policymakers have since sounded slightly more hawkish. Earlier on Wednesday, President Christine Lagarde said “some measured adjustment of policy could be warranted” to tackle “a large though not-too-persistent” inflation overshoot.
Memories of the inflation spike after Russia’s invasion of Ukraine in 2022 and the ECB’s slow response are still raw.
Nearly two-thirds of economists, 38 of 60, held to their view the deposit rate would stay at 2% this year. That is down from over 90% just two weeks ago but has barely moved compared with market gauges of expectations.
“We changed our baseline scenario but not in an extreme case. In this scenario, by June we will all call the war and the energy price shock temporary and therefore would allow the ECB to stay on hold. If this is not the case in June, yes, we’re in for rate hikes,” said Carsten Brzeski, global head of macro research at ING.
Just over a third of respondents, 21 of 60, now expect at least one hike this year compared with three of 72 who held that view in a survey two weeks ago. But only eight of 18 who saw hikes and provided monthly views said the ECB would raise rates in April.
“The chances for April are extremely low. We cannot entirely exclude anything thanks to President Donald Trump. But if I had to add probabilities, it is less than 5%,” added Brzeski.
Respondents expecting rate hikes this year were mostly split between one and two increases. Some rate forecasts were lifted between 25 to 125 bps since the previous poll.
WATCHING FOR SECOND-ROUND EFFECTS
Private sector business surveys published on Tuesday showed input costs hit multi-year highs and euro zone consumer confidence is at its lowest since late 2023.
Those worries have triggered sell-offs in stocks and bonds.
“It’s all about managing inflation expectations and preventing second-round effects… But they will do the bare minimum that is absolutely necessary to keep inflation expectations near the 2% target,” said Bas van Geffen, senior macro strategist at Rabobank. “Because if they do more then they are going to hurt growth more than they might want.”
Economists have sharply raised inflation forecasts in recent weeks.
After measuring 1.9% in February, inflation is now seen averaging 3.0%, 2.8% and 2.8% over the next three quarters, up from 2.3%, 2.1% and 2.1% in the previous poll.
For 2026, it is forecast to average 2.6%, up from 2.0%. Inflation is not expected to return to target until Q2 2027.
“We’re slowly getting into a scenario where the conflict is not resolved as quickly as was anticipated and the energy shock is a lot more pronounced…2022 is not that far in the rear view mirror and inflation expectations spiraling out of control is, I am sure, very clear in the Governing Council’s memory,” said Julie Ioffe, European economist and macro strategist at TD Securities.
Some economists, however, argue that the current backdrop differs meaningfully from 2022 and gives the ECB more room to look through the shock.
“In 2022, the ECB started very late hiking from a negative rate – they were still doing quantitative easing when inflation was already at 5%. It’s like putting a matchstick into a tank of fuel,” said Fabio Balboni, senior economist at HSBC.
“This time it’s different because we’ve taken rates back towards neutral, we’ve been doing quantitative tightening for two years and inflation is back at 2%. Maybe the need to introduce a significant amount of tightening should be less than what was the case in 2022.”
(Other stories from the Reuters global economic poll)
(Reporting by Indradip Ghosh; Polling by Jaiganesh Mahesh and Debrah Gomes; Editing by Ross Finley and Bernadette Baum)
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