Nordea analysts Jan von Gerich, Tuuli Koivu and Anders Svendsen now expect the European Central Bank (ECB) to prioritise inflation over growth as the Middle East conflict prolongs and broader price pressures build. They forecast four 25bp hikes starting in June, taking the deposit rate to 3% by October and staying there through 2027, with risks skewed towards earlier or larger moves.

ECB seen front‑loading inflation response

"We expect the ECB to prioritise inflation worries over growth concerns, and now forecast four 25bp rate hikes in total this year."

"When combining these elements, we expect in our new baseline that the ECB starts to raise rates by 25bp at the June meeting, and then continue hiking rates in 25bp increments in consecutive meetings four times in total to bring the deposit rate to 3% in October."

"We then expect rates to remain at that level for the remainder of our forecast horizon until the end of 2027."

"If the ECB was really worried about the price outlook, it could start raising rates as early as at the April meeting or alternatively hike by more than 25bp in June, but we think 25bp remains the most likely initial step for now."

"One could simplify the outlook by arguing that while the timing of the first hike depends heavily on the development of the conflict and energy prices, the number and pace of subsequent hikes will depend more on how the broader prices pressures evolve and how well the economy performs amidst the headwinds of higher energy prices, elevated uncertainty and rising rates."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)