Overview
- The European Central Bank, which kept rates unchanged on Thursday, is now seen pivoting in June after fresh data and guidance reset expectations.
- ECB policymaker Joachim Nagel said Friday it would be more appropriate to respond in June if the outlook does not improve, reinforcing bets on near‑term action.
- Traders now assign roughly a 75% chance to a June increase with about 70 basis points priced by year‑end, and forecasters such as Standard Chartered, Goldman Sachs and J.P. Morgan expect two hikes this year.
- The ECB’s own surveys showed one‑year household inflation expectations jumping to 4.0% from 2.5% and bank lending conditions tightening to the worst since early 2024, raising the risk of higher wage demands even as credit to the economy slows.
- Analysts say the external energy shock is the main driver, so the bank faces a trade‑off between anchoring expectations and protecting growth, with many seeing two 25‑basis‑point moves as a likely ceiling that would lift borrowing costs for households and firms but stop short of heavy restraint.