Nordea’s Chief Analyst Jan von Gerich notes that the European Central Bank (ECB) kept its key rate at 2.0% and maintained a data-dependent, meeting-by-meeting stance. However, he highlights that a June rate hike now looks likely, with markets already pricing in a 25bp move and nearly 75bp of tightening by year-end, closely linked to energy price developments.

Nordea sees June rate hike likely

"The ECB expectedly kept rates unchanged at 2.0% and retained language about closely monitoring the situation with a data-dependent and meeting-by-meeting approach without pre-committing to a particular rate path."

"Both upside risks to inflation and downside risks to growth have intensified, while longer-term inflation expectations remain well anchored."

"We continue to think the ECB will hike rates by 25bp in June."

"In the Q&A, Lagarde said the ECB is moving away from the March baseline (which implicitly included market expectations of two 25bp rate hikes at the time), supporting expectations of a hike in June."

"A 25bp rate hike for June remains more or less fully in prices, while a total of just below 75bp of hikes is in prices by the end of the year."

"For now, the link between energy prices and ECB rate pricing is likely to remain strong, especially as the ECB confirmed that their response depends to a significant extent by the development of energy prices."

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