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Christine Lagarde, president of the European Central Bank, speaks during the National Association of Business Economics (NABE) economic policy conference in Washington, DC, US, on Monday, Feb. 23, 2026. <\/p>\n
Graeme Sloan | Bloomberg | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
The European Central Bank is expected to hike interest rates on Thursday, as policymakers address the threat of second-round inflation effects amid elevated energy prices.<\/p>\n
Unlike the Fed, the ECB has a single mandate \u2014 keeping inflation close to a target of 2% \u2014 and recent data shows an uptick in both its headline and core readings.<\/p>\n
Headline euro zone inflation rose to 3.2%<\/a> in April as energy prices soared 10.9% year-on-year. The euro zone is a major energy importer and the bloc is particularly vulnerable to the surge in oil prices sparked by the Iran war.<\/p>\n But core inflation also rose to 2.5% in April, primarily driven by higher services costs. That’s a major concern for the ECB as this could be the first signs of second-round effects.<\/p>\n The ECB is also concerned that tighter monetary policy could push the euro zone from feeble growth to outright recession. Nevertheless, the bank’s Governing Council is expected to hike its key deposit rate by 25 basis points to 2.25%.<\/p>\n<\/div>\n Market watchers will also be keeping a close eye on the ECB’s projections for inflation and economic growth. The market is pricing in three rate hikes for the rest of the year.<\/p>\n “Compared with March, we expect ECB staff to mark down the growth projections for 2026-27 and raise both headline and core inflation projections, reflecting a more persistent energy shock and stronger indirect effects into prices,” Sven Jari Stehn, chief European economist at Goldman Sachs, wrote in a note\u00a0at the end of May.<\/p>\n<\/div>\n “Our energy price index\u2014the average of oil and gas\u2014is up about 12% through the projection horizon since the March meeting.”<\/p>\n “The core inflation\u00a0forecasts will be more interesting, especially for 2027,” wrote Anatoli Annenkov, senior European economist at Soci\u00e9t\u00e9 G\u00e9n\u00e9rale in a note from May.<\/p>\n “This forecast will tell us a lot about the ECB staff’s confidence in coming second-round effects, especially taking into account the weakening activity data since March.”<\/p>\n “We expect the ECB to keep rates market pricing relatively unchanged,” said Deutsche Bank\u00a0Securities Director\u00a0Marc Wall\u00a0in research published early this month.<\/strong>\u00a0“Interpreting June as a one-off hike won’t suit the ECB.”<\/p>\n<\/div>\nHow many ECB rate hikes is the market pricing in?<\/h2>\n
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