ECB: Second hike prospects guide Euro rates – Danske Bank

Danske Research Team expects the ECB to raise its deposit rate by 25bp to 2.25% on June 11, in line with market pricing and consensus. They highlight upside surprises in core inflation and higher Oil futures, alongside weaker Euro area growth. They see updated staff projections justifying two hikes in 2026 assumptions and still prefer lower short-end swap rates.

ECB path, inflation and growth mix

"We expect the ECB to hike policy rates by 25bp, bringing the deposit rate to 2.25% on June 11 in line with market pricing and consensus."

"Oil futures have moved higher compared to the baseline staff projections in March and we thus expect the new staff projections to increase the 2026 inflation forecast to 2.9% y/y (from: 2.6%) and 2027 to 2.2% y/y (from: 2.0%)."

"Growth data has surprised on the downside both in terms of Q1 GDP and survey-based indicators in Q2, so we expect a downward revision of the 2026 GDP growth to 0.6% y/y (from: 0.9% y/y) and 2027 to 1.2% y/y (from: 1.3%)."

"As the new staff projections likely assume around 68bp worth of hikes in the technical assumptions, we believe they give the GC [Governing Council] arguments for hiking twice this year."

"As one hike is not significantly changing economic conditions, we expect the ECB to deliver another 25bp hike in Q3."

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