FRANKFURT – Euro area central bankers have raised their key interest rates amid accelerating price growth, but the next steps for the public lender have become even more unclear.
As expected, officials increased the bank’s key rates by 25 basis points, which pushed the benchmark deposit rate to 2.25%. The hike was the first since September 2023.
Speaking to LiveSquawk News ahead of Thursday’s decision, Carsten Brzeski, head of macro at ING Bank, said a 25bp rate hike would be “symbolic” and do little to affect inflation in the single currency area. He noted that earlier on Thursday, ING announced it was changing its expectations for ECB rates to two hikes this year from the previous forecast for a single increase due to the acceleration of consumer price growth.
Expectations among traders echoed ING’s newly revised outlook for a second increase this year.
Brzeski also pooh-poohed comments from some economists that said an increase this week would be wrongheaded due to apparent slowdowns in price growth, especially for oil. “One rate hike is not a policy mistake,” he said.
It should be noted that renewed fighting between the US and Iran has pushed oil prices higher, with Brent above USD 93/bbl and WTI over USD 90/bbl in afternoon trading in Europe on Thursday. And as ECB President Christine Lagarde discussed the bank’s decision to hike rates with journalists in Frankfurt, US President Donald Trump was threatening to bomb Iran that evening, stoking even more uncertainty about the war and its possible end.
For the moment, the ECB has taken action, with Lagarde explaining that neither a rate hold nor a 50bp increase were discussed during the two-day meeting of the bank’s governing council. She said the decision to raise rates was unanimous, “without reservation”. She also responded to critics of bank policy. Noting that the ECB has successfully controlled inflation over the past year, Lagarde said: “We have done our job, and we will continue to do so.”
(Source: ECB)
Even higher prices and weaker growth ahead
The Middle East conflict has forced ECB staffers to revise their March macroeconomic forecasts, and these changes bode ill for those living in the single currency area, where inflation last month increased to 3.2%, the highest since September 2023, according to preliminary data from the EU. The ECB projection for this year’s average price growth was raised to 3.0% – in the baseline scenario (see graphic) – from 2.5%, putting it well beyond the bank’s target of 2.0% over the medium term, a goal to be first met again in the autumn of next year, Lagarde said. “The increase in energy prices will lift inflation further over the summer and keep it well above target into the first half of 2027.”
The bank’s baseline forecasts also included upward revisions of headline inflation in 2027 and core inflation in 2026-2028.
At the same time, the ECB cut its growth outlook for the Eurozone this year by a tenth to 0.8%, the same change announced by the World Bank in Washington as Lagarde spoke to the media in Frankfurt.
Some analysts raised issues with the updated outlook from the ECB. In a post on X, Frederk Ducrozet from Pictet Wealth Management said the core inflation number looks a bit low for 2026, a bit high for 2027, and GDP growth estimate for this year was too optimistic.
Addressing concerns that the euro area economy is stalling, Lagarde said: “It’s not as if we are in an environment where growth is absent or under significant threat.”
At least not yet. But with the rhetoric out of Washington and Tehran turning increasingly antagonistic, and US tariffs steering more Chinese goods to Europe, further price increases and slower growth seem inevitable for the Eurozone if the war continues. The next time the ECB considers a hike, officials may have the justification on the inflation side, but weakness on the growth side could stop them in their tracks.
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- 25bp increase matches market estimates
- Forecasts updates: higher inflation, lower growth
- Traders bet on another hike this year
- Will weak growth tie policymakers’ hands?
By Eric Culp
European Editor, LiveSquawk News
@eculp.bsky.social
@EricCulpLS
11 June 2026 | 14:40 GMT
FRANKFURT – Euro area central bankers have raised their key interest rates amid accelerating price growth, but the next steps for the public lender have become even more unclear.
As expected, officials increased the bank’s key rates by 25 basis points, which pushed the benchmark deposit rate to 2.25%. The hike was the first since September 2023.
Speaking to LiveSquawk News ahead of Thursday’s decision, Carsten Brzeski, head of macro at ING Bank, said a 25bp rate hike would be “symbolic” and do little to affect inflation in the single currency area. He noted that earlier on Thursday, ING announced it was changing its expectations for ECB rates to two hikes this year from the previous forecast for a single increase due to the acceleration of consumer price growth.
Expectations among traders echoed ING’s newly revised outlook for a second increase this year.
Brzeski also pooh-poohed comments from some economists that said an increase this week would be wrongheaded due to apparent slowdowns in price growth, especially for oil. “One rate hike is not a policy mistake,” he said.
It should be noted that renewed fighting between the US and Iran has pushed oil prices higher, with Brent above USD 93/bbl and WTI over USD 90/bbl in afternoon trading in Europe on Thursday. And as ECB President Christine Lagarde discussed the bank’s decision to hike rates with journalists in Frankfurt, US President Donald Trump was threatening to bomb Iran that evening, stoking even more uncertainty about the war and its possible end.
For the moment, the ECB has taken action, with Lagarde explaining that neither a rate hold nor a 50bp increase were discussed during the two-day meeting of the bank’s governing council. She said the decision to raise rates was unanimous, “without reservation”. She also responded to critics of bank policy. Noting that the ECB has successfully controlled inflation over the past year, Lagarde said: “We have done our job, and we will continue to do so.”
Even higher prices and weaker growth ahead
The Middle East conflict has forced ECB staffers to revise their March macroeconomic forecasts, and these changes bode ill for those living in the single currency area, where inflation last month increased to 3.2%, the highest since September 2023, according to preliminary data from the EU. The ECB projection for this year’s average price growth was raised to 3.0% – in the baseline scenario (see graphic) – from 2.5%, putting it well beyond the bank’s target of 2.0% over the medium term, a goal to be first met again in the autumn of next year, Lagarde said. “The increase in energy prices will lift inflation further over the summer and keep it well above target into the first half of 2027.”
The bank’s baseline forecasts also included upward revisions of headline inflation in 2027 and core inflation in 2026-2028.
At the same time, the ECB cut its growth outlook for the Eurozone this year by a tenth to 0.8%, the same change announced by the World Bank in Washington as Lagarde spoke to the media in Frankfurt.
Some analysts raised issues with the updated outlook from the ECB. In a post on X, Frederk Ducrozet from Pictet Wealth Management said the core inflation number looks a bit low for 2026, a bit high for 2027, and GDP growth estimate for this year was too optimistic.
Addressing concerns that the euro area economy is stalling, Lagarde said: “It’s not as if we are in an environment where growth is absent or under significant threat.”
At least not yet. But with the rhetoric out of Washington and Tehran turning increasingly antagonistic, and US tariffs steering more Chinese goods to Europe, further price increases and slower growth seem inevitable for the Eurozone if the war continues. The next time the ECB considers a hike, officials may have the justification on the inflation side, but weakness on the growth side could stop them in their tracks.
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