FRANKFURT – Eurozone officials have discussed raising interest rates as the world economy becomes increasingly handcuffed to the conflict in and around the Persian Gulf.
After the decision, Reuters quoted ECB sources as saying a June hike was “very likely”.
Amid all the talk of economic difficulties brought on by rising energy prices from the war – Brent crude pushed above USD 120/bbl again Thursday morning – European Central Bank President Christine Lagarde indicated that the bank has struck a course. “Directionally, I know where we are heading,” she said, painting an even more hawkish picture for observers. Nordea called the statement “another hint of taking a step towards a rate hike.”
Economists were already predicting a 25-basis point increase in June even before this week’s ECB decision, and that policy change now seems like a largely done deal barring an abrupt end to the conflict.
“We continue to see a June hike and more later on,” Nordea said.
Despite an “at-length and in-depth” debate about higher rates, Lagarde said officials at the public lender unanimously decided to stay the course this month, a move widely predicted by economists. The bank left its benchmark discount rate at 2%, a non-move that followed similar hands-off decisions this week at central banks in Canada, the US, and the UK.
The ECB announcement came just hours after the European Union said annual headline inflation in the Eurozone this month jumped to the psychologically important level of 3%. The April rate, the highest since September 2023, was in-line with estimates, up from 2.6% in March, and pushed even further away from the ECB’s medium-term target of 2%.
The bank said economic risks had intensified, with those to growth on the downside and those for inflation on the upside. Lagarde noted that the bank had jettisoned the modifier “tilted” that suggested less acute routes for GDP and household costs. Regardless, Lagarde said the ECB is ready to do its job: “We will tame inflation.”
What a difference a war makes
Eurozone consumer price growth was only 1.9% in February before the US and Israel began their attacks on Iran on the last day of that month. Since then, energy inflation in the euro area has skyrocketed from -3.1% to 5.1% in March and 10.9% in April.
Additionally, Eurozone growth was lower than expected in the first quarter, falling to a quarterly rate of 0.1% from 0.2% in the final three months of 2025. The first month of fighting in the Gulf coincided with the final third of Q1.
In general, available economic data to date has been concerning. German business confidence this month fell to its worst mark since 2020 during the height of the pandemic. And the preliminary Eurozone composite PMI reading for April slumped to 48.6 points, pushing it into contraction territory below the 50 mark and its lowest result in 17 months. The services reading was the worst in more than five years. The manufacturing index surged to its best mark since May 2022, but analysts warned that the jump was due to additional production driven by war-related fears of inflation and supply shortages, which has spurred some companies to build stocks.
The bank was more pessimistic about the weeks leading up to its next rate decision, which is set for June 11. Lagarde said expectations have moved away from the bank’s baseline scenario issued last month toward darker outlooks, a change that indicates even more hardship for the economy and consumers, which could require more shifts in monetary policy to help.
“There is an ocean of uncertainty,” Lagarde said at one point during Thursday’s press conference.
More forecasts from the ECB staff are due by mid-June, which will add to external economic indicators and could help shore up any arguments for a hike.
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- Consumer price growth highest since 2023
- Conflict adds further risks to prices, growth
- “We will tame inflation.”
- Rate increases widely expected in June
By Eric Culp
European Editor, LiveSquawk News
@eculp.bsky.social
@EricCulpLS
30 April 2026 | 16:00 GMT
FRANKFURT – Eurozone officials have discussed raising interest rates as the world economy becomes increasingly handcuffed to the conflict in and around the Persian Gulf.
After the decision, Reuters quoted ECB sources as saying a June hike was “very likely”.
Amid all the talk of economic difficulties brought on by rising energy prices from the war – Brent crude pushed above USD 120/bbl again Thursday morning – European Central Bank President Christine Lagarde indicated that the bank has struck a course. “Directionally, I know where we are heading,” she said, painting an even more hawkish picture for observers. Nordea called the statement “another hint of taking a step towards a rate hike.”
Economists were already predicting a 25-basis point increase in June even before this week’s ECB decision, and that policy change now seems like a largely done deal barring an abrupt end to the conflict.
“We continue to see a June hike and more later on,” Nordea said.
Despite an “at-length and in-depth” debate about higher rates, Lagarde said officials at the public lender unanimously decided to stay the course this month, a move widely predicted by economists. The bank left its benchmark discount rate at 2%, a non-move that followed similar hands-off decisions this week at central banks in Canada, the US, and the UK.
The ECB announcement came just hours after the European Union said annual headline inflation in the Eurozone this month jumped to the psychologically important level of 3%. The April rate, the highest since September 2023, was in-line with estimates, up from 2.6% in March, and pushed even further away from the ECB’s medium-term target of 2%.
The bank said economic risks had intensified, with those to growth on the downside and those for inflation on the upside. Lagarde noted that the bank had jettisoned the modifier “tilted” that suggested less acute routes for GDP and household costs. Regardless, Lagarde said the ECB is ready to do its job: “We will tame inflation.”
What a difference a war makes
Eurozone consumer price growth was only 1.9% in February before the US and Israel began their attacks on Iran on the last day of that month. Since then, energy inflation in the euro area has skyrocketed from -3.1% to 5.1% in March and 10.9% in April.
Additionally, Eurozone growth was lower than expected in the first quarter, falling to a quarterly rate of 0.1% from 0.2% in the final three months of 2025. The first month of fighting in the Gulf coincided with the final third of Q1.
In general, available economic data to date has been concerning. German business confidence this month fell to its worst mark since 2020 during the height of the pandemic. And the preliminary Eurozone composite PMI reading for April slumped to 48.6 points, pushing it into contraction territory below the 50 mark and its lowest result in 17 months. The services reading was the worst in more than five years. The manufacturing index surged to its best mark since May 2022, but analysts warned that the jump was due to additional production driven by war-related fears of inflation and supply shortages, which has spurred some companies to build stocks.
The bank was more pessimistic about the weeks leading up to its next rate decision, which is set for June 11. Lagarde said expectations have moved away from the bank’s baseline scenario issued last month toward darker outlooks, a change that indicates even more hardship for the economy and consumers, which could require more shifts in monetary policy to help.
“There is an ocean of uncertainty,” Lagarde said at one point during Thursday’s press conference.
More forecasts from the ECB staff are due by mid-June, which will add to external economic indicators and could help shore up any arguments for a hike.
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