Economists expect June ECB rate hike as stagflation risk stays high

Economists expect June ECB rate hike as stagflation risk stays high - Reuters poll

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The European Central Bank (ECB) could tighten monetary policy sooner than previously expected, according to the latest Reuters poll of economists.

A Reuters poll shows that a large majority of economists expect the ECB to raise its deposit rate in June.
Expectations for further monetary tightening this year have strengthened compared to the previous survey.
A significant share of economists believe the risk of stagflation remains high in the Eurozone this year.

The European Central Bank (ECB) could tighten monetary policy sooner than previously expected, according to the latest Reuters poll of economists.

The survey showed that 74 out of 80 economists expect the ECB to raise its deposit rate to 2.25% at its June 11 meeting, up from 59 out of 70 economists in the May survey. The shift highlights a growing consensus in favor of tighter monetary policy as inflation risks remain persistent.

Expectations for the rest of the year have also become more hawkish. Reuters reported that 49 out of 80 economists now forecast two additional rate hikes in 2026, compared with 34 out of 70 in the previous poll.

Among the economists surveyed, 28 out of 42 said the risk of stagflation this year is high, a scenario characterized by weak economic growth alongside persistent inflation. Such a combination could further complicate monetary policy decisions for the European Central Bank in the coming months.

Market reaction

The Euro reacted modestly to the Reuters poll, but the market impact remains limited as investors had already largely priced in an ECB rate hike in June. EUR/USD trades around 1.1620 on Wednesday at the time of writing, down 0.11% on the day, suggesting that the survey has done little to alter the broader market outlook for ECB policy.

ECB FAQs

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

What is Quantitative Easing (QE) and how does it affect the Euro?

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

What is Quantitative tightening (QT) and how does it affect the Euro?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.