ECB President Lagarde hinted at a possible rate hike in June; traders expect three 25-basis-point hikes in Europe this year.

On Thursday, ECB President Lagarde stated that the European Central Bank will consider a possible rate hike in June—even though policymakers discussed and rejected this proposal at Thursday’s meeting:

We made a prudent decision in the absence of sufficient information. We not only debated the decision unanimously approved today, but also explored the potential rate hike option in depth and at length.

Asked whether a rate hike will take place at the June meeting—which is currently the widespread expectation among investors and analysts—Lagarde said that the next six weeks will be an appropriate time to assess the economic situation in order to make an informed decision based on verified and reviewed information.

Speaking at a press conference in Frankfurt, Lagarde noted that the eurozone economy is clearly deviating from the ECB’s baseline scenario, and policymakers discussed a range of options at the meeting, including a possible rate hike.

In the April meeting, ECB officials kept the deposit rate unchanged at 2%, a level that has not changed since June 2025. The ECB said both upside risks to inflation and downside risks to growth have intensified, and the Governing Council remains well positioned to address current uncertainties.

So far, ECB officials have not seen compelling evidence in the data that necessitates tighter monetary policy. Lagarde pointed out that the rise in oil and gas costs has not yet triggered so-called second-round effects, while at the same time, growth in the bloc of 21 member countries is starting to come under pressure.

The ECB is not the only central bank to hold steady: The US Federal Reserve kept rates unchanged this Wednesday, and the Bank of England also decided to hold on Thursday.

The ECB is also focused on the impact on output. Data released just before the rate decision showed that eurozone GDP grew just 0.1% in the first quarter, below expectations, boosting market concerns about stagflation. Lagarde, however, downplayed this:

We will not apply the sensational word ‘stagflation’ to the current situation; we believe this concept is related to the events of the 1970s.

The market believes ECB officials will focus on price increases—April’s inflation rate jumped to 3%, the fastest pace since autumn 2023, mainly due to rising energy costs. Traders currently expect the ECB to raise rates by 25 basis points three times this year.

Geopolitical clouds loom at present. Ahead of this week’s meeting, ECB policymakers said that the ongoing two-month conflict in the Middle East and the continued blockade of the Strait of Hormuz have left the eurozone’s economic situation somewhere between the baseline scenario and the more pessimistic scenario presented in March. Lagarde said, “We are clearly deviating from the baseline scenario, and the trajectory of energy prices will be critical.”

The baseline scenario assumes an average oil price of $81.3 per barrel in 2026, while in the adverse scenario, Brent crude may approach $120 per barrel this quarter. Earlier Thursday, oil prices briefly hit more than a four-year high, surpassing $126 per barrel.

In June, ECB officials will receive the latest forecast data, and economists and investors widely expect the ECB to opt for a rate hike. By then, some uncertainty regarding the duration of the conflict and its economic impact may also have dissipated.

Currently, the US and Iran remain deadlocked over whether the reopening of the strait is a precondition or a result of a peace agreement. Lagarde said, “I know the general direction, but we still need to wait and see; the situation may change dramatically. One factor will have a truly profound impact—that is, the duration of the conflict.”

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