Danske Research Team expects the European Central Bank (ECB) to leave the deposit rate at 2.00% while keeping the door open for summer tightening. The bank looks for 25bp hikes in both June and July and sees Euro Area Harmonised Indices of Consumer Prices (HICP) at 2.8–2.9% y/y, with core easing.

ECB patience but tightening bias

"We anticipate the ECB will keep the deposit rate steady at 2.00% today, consistent with consensus and market expectations. Attention will be centred on signals, as we expect Lagarde to maintain flexibility by keeping the option of summer hikes open to anchor inflation expectations, while refraining from committing to any specific action."

"We expect the ECB will raise policy rates by 25bp in both June and July. On the strategy side, we favour playing the move for lower short-end swap rates, highlighting the negative growth effects from the negative supply shock."

"In the euro area, we expect the flash April HICP data to rise to 2.9% y/y from 2.6% y/y due to energy prices while core inflation is expected to decline to at 2.2 % y/y. Data from Germany and Spain released yesterday revealed no significant changes to the monthly momentum of core inflation, so we are still only seeing "first round" effects of the oil shock, which supports the ECB's "wait and see" approach today."

"We also get the flash Euro Area Q1 GDP data today. We forecast GDP rose 0.3% q/q in line with the ECB's baseline and adverse scenarios. Furthermore, we received the unemployment rate for March which we expect remained at 6.2% which should not be affected by the war in Iran."

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