Staying put in April is already a foregone conclusion; oil prices breaking $100 may force the ECB into a “preventive rate hike” in June.

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The European Central Bank is caught in a dilemma: Middle East conflicts are pushing up energy prices, European inflation continues to exceed targets; surging oil prices drag down economic expectations, and growth prospects are being revised down.

A Reuters survey conducted from April 17 to 23 among 85 economists shows that more than half of respondents expect the European Central Bank to keep interest rates unchanged on April 30, but then raise the deposit rate by 25 basis points to 2.25% in June. This view marks a significant shift from the end of last month—when most economists still expected no change in rates for this year.

Inflation data is the core driver behind this shift in expectations. The inflation rate in the eurozone jumped from 1.9% last month to 2.6%, far above the 2% target, with financial markets already pricing in more than two rate hikes. The surge in oil prices is simultaneously dampening business and consumer confidence, leading to downward revisions in growth forecasts. Against this backdrop, holding steady in April has become market consensus, but if oil prices stay above $100, the ECB may be forced to implement "preventive rate hikes" in June.

Pause in April, divided views on June rate hikes

Among the 85 economists, 84 expect the ECB to keep rates unchanged on April 30, showing strong consensus. However, the June outlook is divided: 44 predict a rate hike to 2.25%, 40 expect no change, with both camps nearly evenly matched.

Ruben Segura-Cayuela, Head of European Economics Research at Bank of America, said the ECB is striving to avoid the mistake of 2011, when it was forced to reverse rate hikes. "They need to be sure that once they hike rates, they won't have to quickly withdraw. That's why they're considering acting in June rather than April." He also warned, if the economic reaction is worse than expected, it might provide an excuse to delay rate hikes, "Once postponed, at some point, it might never happen."

ECB officials have issued firmer anti-inflation signals than their peers, yet have downplayed the possibility of immediate rate hikes, citing lack of sufficient evidence that energy costs are spreading into broader price categories.

Unclear path after June, second-round effects are key

There is no consensus among economists on policy direction after June. Out of 85 respondents, 34 expect at least one more rate hike before year-end, while over 40% (35) still anticipate no rate changes this year.

Anna Titareva, European economist at UBS, holds a hawkish view, believing the ECB has no time to wait. "If second-round effects really appear in the data, it will already be too late. That's why we think the ECB, out of preventive and forward-looking considerations, will hike rates in June and September."

Jennifer Lee, Senior Economist at BMO Capital Markets, is more cautious. She said that if oil prices stay around $100 a barrel, the ECB has reason to remain on hold, "As long as inflation expectations stay under control, that's enough for the ECB to stay on the sidelines."

Dual pressures from oil prices and growth outlook

Energy prices are a core variable in the ECB's policy decisions. Brent crude averaged nearly $100 per barrel this month, which exceeds the ECB's March baseline assumption of a $90 peak, but is still below the adverse scenario of $119.

On the growth side, the survey shows that the eurozone's quarterly growth rate is expected to stay around 0.2% for the full year, with full-year expansion of 0.9% in 2026, a downgrade from the 1.2% forecast in early March. Germany and France are expected to grow by 0.7% and 0.9% respectively this year, both slightly down from the January survey. Regarding inflation, surveyed economists expect an average above 3% over the next three quarters, with a full-year average of 2.7%, roughly in line with the ECB's own forecast.

The ECB’s decision-making remains overshadowed by history: the bank was heavily criticized for its slow response to inflation in 2022, and is still haunted by memories of its two rate hikes during the commodity price surge in 2011, which exacerbated the euro debt crisis.

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