ECB officials hint at a rate hike in April: if the data worsens, action will be unavoidable

Multiple European Central Bank officials have issued hawkish signals consecutively, increasing the likelihood of a rate hike in April. Against the backdrop of rising energy prices due to the Iran conflict and a more complex inflation outlook, the ECB’s policy path has reached a critical turning point.

ECB Governing Council member and Irish Central Bank Governor Gabriel Makhlouf said on Friday that if data indicates it is necessary, a rate hike in April is not impossible, emphasizing that “the next meeting will definitely be an active one.”

On the same day, Bundesbank President Joachim Nagel stated that if inflationary pressures continue to build, the ECB may need to act as early as April. According to Bloomberg, citing sources, “officials have already considered a rate hike in April as a realistic option.”

Markets have adjusted their pricing accordingly. Data from the London Stock Exchange Group (LSEG) shows that the market currently prices in about a 50% chance of a rate hike in April and an 80% chance in June. JPMorgan, Morgan Stanley, and Barclays all raised their forecasts for the ECB’s policy path on Thursday, expecting multiple rate hikes this year.

Official Statements: Data-Dependent, Clear Hawkish Bias

Makhlouf was cautious in his remarks during a Bloomberg TV interview but sent a clear signal. He said he “completely understands” the market’s bets on two rate hikes this year—consistent with the ECB baseline scenario—but stressed that policy decisions will remain calm and cautious.

“If the facts show we need to act, we will definitely act,” he said. “But ultimately, it depends on the data. We have six weeks until the next decision, which is a long time in the current shock environment.”

Makhlouf also noted that the ECB’s current stance does not favor tightening but is “paying close attention” to energy prices and will respond as needed to achieve the 2% inflation target.

Nagel’s comments were more direct: “Given the current situation, it is foreseeable that medium-term inflation prospects could worsen, and inflation expectations could continue to rise. A more restrictive monetary policy stance will very likely be necessary at that point.”

Institutions Upgrading Forecasts: Up to Three Rate Hikes in Sight

In response to the shift in policy signals, major Wall Street institutions quickly revised their expectations.

According to Reuters, Barclays and JPMorgan both expect the ECB to raise rates three times this year, by 25 basis points each, in April, June, and July, bringing the deposit facility rate from the current 2% to 2.75%. Morgan Stanley predicts the ECB will raise rates twice—once in June and once in September—pushing the rate to 2.5%.

Earlier, the ECB held key rates steady at 2% as expected on Thursday, but ECB President Christine Lagarde warned that inflation risks make the outlook “significantly more uncertain.” The latest forecasts show inflation will break above the 2% target this year, while economic growth will slow.

The magnitude of this forecast shift is notable—many institutions previously expected the ECB to keep rates unchanged through 2026, but now expectations have fully shifted.

Divergence Remains: The Tightening Path Is Contested

Not all voices point toward rate hikes. Former ECB President Jean-Claude Trichet told CNBC on Friday that the ECB’s approach of assessing the situation at each meeting “is very wise,” and he believes Europe has not yet reached the stagflation threshold, with the current slowdown in growth “not yet severe.”

UBS economists wrote in a report Thursday that they expect the ECB to keep rates steady rather than tighten policy, a view “contrary to market expectations.”

Market participants also warn of the risks of over-tightening. Richard Carter, Head of Fixed Income Research at Quilter Cheviot, said, “Any surge in inflation will naturally drag down economic growth, so it’s crucial for the ECB not to over-tighten and to stay attentive to economic prospects.” “This is especially difficult amid such volatile Middle East tensions.”

Ultimately, the duration of the war will be a key variable influencing ECB decisions. Until data becomes clearer, the direction of the April meeting remains uncertain.

Risk Warning and Disclaimer

Market risks exist; invest cautiously. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest at your own risk.