2.0 per cent is where the European Central Bank left its deposit rate at the April meeting, but officials warned a return to tightening is possible if an oil-driven shock pushes up inflation expectations. The bank pointed to a sharp rise in short-term expectations, lenders tightening credit supply and firms signalling plans to raise prices as reasons it could act. Markets and some strategists are already pricing multiple moves this year, while private forecasters diverge from one another. The next concrete test is the Governing Council meeting on 11 June.

The ECB kept its key deposit rate at 2.0 percent in April, yet officials made plain that a fresh round of hikes could be put back on the table if energy costs cause inflation expectations to de-anchor and price pressures broaden across the economy, according to one account.

What moved: markets, surveys and credit

Financial markets have reacted as if multiple rate increases are likely. Futures and some market strategists have priced in roughly three hikes over the course of the year. Several commentators argued that such pricing looked aggressive relative to the data available at the end of April.

Two pieces of ECB-sourced evidence are central to the bank's caution. The ECB's consumer survey showed 12-month inflation expectations jumping to 4.0 percent, up from 2.5 percent in February, while three-year expectations rose to 3.0 percent, a level well above the bank's 2.0 percent target. Separately, the European Commission's monthly business and consumer survey recorded a broad plunge in confidence and signalled that firms intend to raise prices in coming months, a dynamic that would feed into headline inflation if realised.

The bank's quarterly survey of lenders also matters. It indicated that banks are already tightening the supply of credit.

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That tightening can magnify the hit to activity if rates rise further, because households and firms may face higher borrowing costs and reduced access to loans at the same time as prices are rising.

Those indicators help explain why the Governing Council judged that, despite headline inflation having climbed to about 3 percent in April, the outlook at that meeting didn't yet warrant a policy change. The Council was influenced by medium-term forecasts, according to one account of the decision.

Policy splits: forecasters and officials

Private forecasters differ sharply on how many hikes lie ahead. Commerzbank's baseline assumes at most one additional ECB rate increase. In its view, eurozone inflation will rise to just over 3.0 percent by summer before easing, and the bank has revised its 2026 growth forecast to 0.6 percent because of the war's impact.

By contrast, Nordea has adopted a much more aggressive path. Nordea now forecasts four consecutive 25 basis point hikes starting in June, citing persistent core inflation above target, a tight labour market and economic resilience as the reasons for a steeper cycle.

Top ECB officials have warned publicly that the duration and scale of the Middle East conflict could make it harder to look through the energy shock. In one interview, an ECB official said that infrastructure damage and ongoing supply-route risk may keep energy prices higher for longer, which might force the bank to tighten policy even if a ceasefire is reached before June. That warning appears in a single account and isn't echoed with the same specificity elsewhere in the coverage.

Across the bank's public remarks, ECB speakers have emphasised that policy decisions will follow actual inflation datapoints, survey-based longer-term inflation expectations and wage developments. The institution is said to be operating on scenario updates rather than pre-committing to a fixed path, and officials repeatedly underlined their reluctance to react to a single piece of volatile data.

Markets and some bank strategists continue to price in more aggressive action than the ECB's cautious language implies.

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The next clear date is the ECB Governing Council meeting on 11 June, which sources identify as the earliest plausible timing for a fresh policy move if oil-driven inflation pressures and expectations remain elevated.

This article was created with AI assistance.