Nordea analysts Jan von Gerich and Tuuli Koivu expect the European Central Bank to keep rates unchanged at its 19 March meeting, even as upside risks to inflation and ECB rate hikes increase. They highlight that market pricing has brought forward tightening expectations, while new ECB staff projections and risk scenarios around the Middle East conflict will be crucial for assessing medium‑term inflation risks.

ECB seen on hold but more hawkish

"Uncertainty has reached new levels, and while the ECB is likely to sound alert and vigilant towards upside price risks, the central bank is unlikely to be close to hiking rates yet. A hawkish message could still boost the pricing of hikes further."

"Despite rising upside risks, the ECB is set to leave rates unchanged at its monetary policy meeting next week (19 March). This should not come as a big surprise, as also market pricing illustrates a rising chance of a rate hike really from the April meeting onwards."

"We note the upside risks and are alert to all signs that would point to a more prolonged conflict in the Middle East, which would keep energy prices higher for a longer time and likely trigger a forecast change towards earlier ECB hikes. However, for now we decide to keep our baseline of hikes only in 2027, though with prominent risks towards earlier hikes."

"For these reasons, while we expect the ECB to be alert and vigilant, the central bank is unlikely to be close to hiking rates yet. That said, the message next week is still likely to strike a hawkish tone."

"While we tend to think the April meeting comes too soon, as the ECB would likely want to see another round of forecasts at the June meeting, at a minimum, before being ready to act, the market pricing of some 8bp of tightening for the April meeting and cumulative 18bp for the June meeting still leaves room on the upside, if the ECB does not nothing to try to talk down such expectations."

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