ECB: June hike risk grows on energy shock – Standard Chartered

Standard Chartered strategists Christopher Graham and John Davies expect the European Central Bank (ECB) to keep the deposit rate at 2.00% on 30 April, citing a wait‑for‑data stance as the Middle East conflict evolves. They see rising risk of a June rate hike if the Strait of Hormuz stays effectively closed. April Euro area inflation is forecast at 2.9% headline and 2.2% core, limiting April hike tail risks.

ECB weighs inflation risks versus weak growth

"We expect the European Central Bank (ECB) to keep the deposit rate on hold at 2.00% at its 30 April policy meeting."

"President Lagarde is likely to reiterate that it is still too early to draw firm conclusions on the overall economic impact, but she may not push back strongly on the degree of rate hikes priced into the market, instead simply noting that the ECB is keeping all options on the table and stands ready to act if necessary."

"That said, economic data published since the March meeting underscores the dilemma facing the ECB; whether to focus purely on the upside risks to inflation created by the energy price surge, or to place equal weight on the downside risks to growth."

"On the one hand, headline inflation jumped in March (as higher oil prices rapidly impacted fuel prices), but core inflation drifted lower (so far remaining insulated from the energy price spike) and PMIs unexpectedly fell into contractionary territory in April."

"We expect April inflation (published 30 April, prior to the ECB’s policy meeting) to demonstrate a similar trend, with headline rising to 2.9% and core drifting lower to 2.2%."

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