ECB official hints at April rate hike: if data worsens, action will be inevitable

Multiple ECB officials have successively issued hawkish signals, and the likelihood of a rate hike in April is increasing. Against the backdrop of the Iran war driving up energy prices and the inflation outlook becoming more complex, there has been a critical shift in the ECB’s policy stance.

On Friday, Gabriel Makhlouf, a member of the ECB’s Governing Council and governor of the Central Bank of Ireland, stated that if the data indicates it is necessary, a rate hike in April is not out of the question; he also emphasized that “the next meeting will definitely be a very active one.”

On the same day, Joachim Nagel, governor of the Bundesbank, said that if inflationary pressures continue to build, the ECB may need to act as early as April. According to Bloomberg, citing sources familiar with the matter, officials internally have already considered a rate hike in April as a realistic option.

Markets have already begun to price in these expectations. According to data from the London Stock Exchange Group (LSEG), the market currently prices in about a 50% chance of a rate increase in April, with the probability of a hike in June rising to 80%. JPMorgan, Morgan Stanley, and Barclays all raised their forecasts for the ECB’s policy path on Thursday, shifting to expect multiple rate hikes this year.

Official statements: data-dependent, with a clear hawkish tilt

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

“If the facts show that we need to act, we will definitely act,” he said. “But ultimately, it depends on the data. We are six weeks away from the next decision, and in the context of the current shocks, that is a very long time.”

Makhlouf also noted that there is currently no tilt toward tightening in the ECB’s policy stance, but it is “closely monitoring” energy prices and will respond as needed to achieve the 2% inflation target.

Nagel’s remarks were more direct: “Given the current situation, it is foreseeable that the medium-term inflation outlook could worsen, inflation expectations may continue to rise, and a more restrictive monetary policy stance will very likely be necessary by then.”

Institutions revise forecasts upward: up to three rate hikes now in view

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

According to Reuters, Barclays and JPMorgan both expect the ECB to raise rates three times this year, by 25 basis points each, with timing set for April, June, and July, when the deposit facility rate would rise from the current 2% to 2.75%. Morgan Stanley, meanwhile, expects the ECB to raise rates once each in June and September, pushing the rate up to 2.5%.

Earlier on Thursday, the ECB kept its key interest rate unchanged at 2%, as expected, but ECB President Christine Lagarde warned that inflation risks have made the outlook “significantly more uncertain.” The latest projections show that inflation will exceed the 2% target this year, while economic growth is expected to slow.

The magnitude of this shift in outlook is significant—many institutions previously expected the ECB to keep rates steady through 2026, but now they have fully reversed their stance.

Disagreements remain: the path of tightening is still debated

Not all voices point toward rate hikes. Former ECB President Jean-Claude Trichet, in an interview with CNBC on Friday, said that the ECB’s approach of assessing conditions meeting by meeting “is very prudent,” and he believes Europe has not yet reached the threshold for stagflation, and that the current slowdown in growth “is not severe.”

In a report Thursday, UBS economists wrote that they expect the ECB to keep rates unchanged rather than tighten policy, a view that “differs from 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 weigh on economic growth, so it is crucial that the ECB does not tighten excessively and remains attentive to the economic outlook.” “In the highly volatile and unpredictable Middle East situation, this is extremely challenging.”

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