Key Takeaways
- The ECB held its key interest rate steady at 2% for a seventh consecutive meeting.
- Amid renewed fears of rising inflation due to higher energy prices, markets are now pricing in up to three interest rate hikes in 2026.
- Weak growth alongside rising inflation is heightening stagflation concerns.
The European Central Bank kept its key interest rate unchanged at 2% on Thursday, as expected, despite inflation in the eurozone rising to 3.0% in April following surging energy prices amid the war in the Middle East. This marks the seventh straight meeting without a rate change since the rate-cutting cycle began in June 2024.
“While the incoming information has been broadly consistent with the governing council’s previous assessment of the inflation outlook, the upside risks to inflation and the downside risks to growth have intensified,” the ECB said in its press release. “Longer-term inflation expectations remain well anchored, although inflation expectations over shorter horizons have moved up significantly.”
The governing council will closely monitor the situation and will continue to follow a data‑dependent, meeting‑by‑meeting approach and will not pre‑commit to a particular rate path, according to the statement.
Stock, bond and currency markets’ reaction was muted as the rate decision had been widely expected.
“Markets will likely read the language in today’s statement positively. Words like ‘monitor the situation’ imply there is no collective need to panic,” says Michael Field, Morningstar’s chief European markets strategist. “Interest rate setting had become relatively stable until just a few months ago. Now, with the price of a barrel of oil spiking to USD 125, everything has shifted. Central bankers are of course concerned about the impact on inflation if the Middle East conflict becomes any more prolonged.”
Futures markets have rapidly repriced the ECB outlook this week, shifting from pricing in roughly two rate hikes earlier this week to nearly three, as rising energy prices sharply altered inflation expectations.
Key Eurozone Interest Rates
Since June 11, 2025, the three ECB key interest rates have been:
- Deposit rate: 2.00%
- Main refinancing rate: 2.15%
- Marginal lending facility: 2.40%
Eurozone Economy at a Glance
- ECB deposit rate: 2%
- Eurozone preliminary headline inflation (April): 3.0%
- Eurozone preliminary core inflation (April): 2.2%
- ECB inflation target: 2%
- Market pricing: almost 3 hikes in 2026
- GDP growth in the first quarter: 0.1%
Stagflationary Pressure Rises
The ECB’s decision comes in a week packed with fresh macroeconomic data and major central bank decisions. Eurozone inflation came in at 3.0%, in line with expectatons but well above the ECB’s target, according to preliminary consumer price data for April, published earlier Thursday.
Seasonally adjusted GDP grew by 0.1% quarter over quarter in the euro area, missing the market consensus of a 0.2% expansion, according to a preliminary estimate published by Eurostat. In the fourth quarter of 2025, GDP had increased by 0.2%. This has raised concerns that the eurozone is facing rising stagflation risks—a mix of high inflation and weak economic growth.
Also earlier Thursday, the Bank of England held rates steady, as did the US Federal Reserve and the Bank of Canada on Wednesday.
“The latest data releases in the eurozone have clearly complicated the ECB’s life,” says Carsten Brzeski, global head of macro at ING. “Slightly weaker-than-expected GDP growth in the first quarter, increasing headline inflation but dropping core inflation in Germany and a Bank Lending Survey pointing to tighter credit standards and weaker loan demand all suggest that stagflationary pressures are increasing.”
“In its policy statement, the ECB acknowledged rising inflationary pressures but also more downward risks to growth. The policy statement didn’t give any hint about the next steps. It looks as if the ECB is in no rush to hike,” he adds
Will the ECB Hike Rates in June?
Looking beyond April, rate hikes are becoming more likely. A renewed surge in oil prices this week, as the US-Iran standoff over the Strait of Hormuz dragged on, has led markets to reprice inflation expectations.
The ECB’s latest bank lending and inflation expectation surveys point to upside inflation risks combined with downside growth risks, says Deutsche Bank Research. Inflation expectations for one year among eurozone consumers jumped across the board in March, according to the ECB’s monthly survey of consumers, rising from 2.5% to 4.0%, their highest level since 2023. The Bank Lending Survey meanwhile showed a clear deterioration, pointing to the tightest credit conditions since early 2024. “It was a difficult backdrop, and inflation fears saw markets fully price in an ECB rate hike by the June meeting again,” Deutsche Bank Research said Wednesday. Bond yields have moved higher, while equity markets have weakened.
“The market is currently pricing in almost three rate hikes over the next 12 months, which we consider excessive even when taking elevated inflation expectations into account”, says Annalisa Piazza, fixed-income portfolio manager at MFS Investment Management. “We expect rate hikes in June and possibly in September, followed by a reversal in early 2027 if growth does not recover sufficiently and the output gap persists.”
When Are the Next ECB Meetings in 2026?
- June 11, 2026
- July 23, 2026
- Sept. 10, 2026
- Oct. 29, 2026
- Dec. 17, 2026
