Key Takeaways
- Futures markets are pricing in a rate hike at the ECB’s June 11 meeting, as the Iran war is proving to be a longer-term inflation driver.
- ECB will release new macroeconomic projections along with its rate decision, and experts expect that inflation estimates for 2026 and 2027 will be raised significantly.
- Experts expect another hike in September, but they think that the ECB will continue to operate on a data dependent approach to monetary policy.
An interest rate hike appears the most likely outcome when the European Central Bank meets on June 11, as the Iran war drives up energy costs and increases the prospect of higher inflation in the coming months.
The markets view an ECB rate hike in June as highly likely after the acceleration of eurozone inflation in May. According to preliminary data, consumer prices rose 3.2% last month from 3% in April, well above the central bank target inflation rate of 2%. Core inflation, which strips out volatile components such as energy and food prices, came in at 2.5%, up from 2.2% in April.
“A quarter-percent interest rate rise appears baked-in for Thursday, with economists almost unanimous in their predictions,” Morningstar’s chief European markets strategist Michael Field says.
After the inflation figures were released last week, futures data compiled by Bloomberg implied a roughly 97% likelihood of an ECB rate hike by 0.25 percentage points at its June meeting. According to a Reuters poll, more than 90% of economists expect an increase to 2.25%, up from just over half in April.
“At its 11 June meeting, the ECB is very likely to raise its key interest rates by 25 basis points, in line with its recent hawkish communication,” says Martin Wolburg, senior economist at Generali Investments.
“The June rate increase would mainly serve to preserve the ECB’s anti-inflation credibility and help anchor expectations. But with hopes for a peace deal in the Iran conflict fading again and stagflation risks remaining elevated, President Christine Lagarde will likely want to keep the door open to further tightening if needed,” Wolburg says.
According to Carsten Brzeski, global head of macro at ING, it will be an “insurance” rate hike after the criticism the ECB was slow to act in 2022. The situation is different from 2022, because when the ECB acted, headline inflation was actually above 8% year over year. However, Brzeski thinks that June’s hike will be “a symbolic move, stressing the ECB’s determination to act.”
What Are the Key ECB Interest Rates?
Since June 11, 2025, the ECB’s three policy rates have stood at:
- Deposit Facility Rate: 2.00%
- Main Refinancing Rate: 2.15%
- Marginal Lending Facility: 2.40%
After the first ECB rate cut in June 2024, a total of eight rate cuts have taken the deposit facility rate from 4.00% to the current level of 2.00%.
What to Expect from the ECB’s New Macroeconomic Projections?
The policy outlook is becoming more complex, as the ECB must balance persistently high inflation against weakening economic activity. For this reason, the new ECB macroeconomic projections, that will also be released on June 11, are likely to be in focus for investors.
“We expect a revision of the projections,” says Alessandro Tentori, chief investment officer Europe at BNP Paribas AM. While the 0.9% GDP growth forecast made in March is broadly in line with the current Bloomberg consensus of 0.8%, Tentori says that inflation estimates may be revised upward, given that consensus estimates stand at 2.9%. The ECB’s March projections indicated a 2.6% increase in 2026.
“Assuming that oil prices do not return to preconflict levels anytime soon, inflation estimates for 2026 and 2027 will need to be revised significantly upward,” says Ulrike Kastens, senior economist at DWS. At the same time, growth is slowing as the latest PMI reading suggests. The S&P Global eurozone Composite Purchasing Managers’ Index fell to 48.5 in May from 48.8, marking back-to-back months of contraction for the first time since the end of 2024.
“Growth is slowing, credit conditions have tightened and there is still limited evidence of broad-based second-round wage effects. Moreover, monetary policy cannot address the root causes of a supply-driven shock,” says Wolburg of Generali Investments.
The Risk of Untimely Monetary Tightening
The ECB faced criticism for reacting too slowly to surging inflation in 2022, so it may want to take a more aggressive stance this year. “But this is not 2022,” says Raphaël Gallardo, chief economist at Carmignac. “The profit-employment nexus is way less powerful today than in 2022 and looser job markets imply weaker workers’ bargaining power, limiting the scope of tightening to two summer hikes.”
However, BNP Paribas AM’s Tentori believes this could pose a “political” risk of untimely tightening. He says that two other risks are that inflation may begin to fall after the summer and that the economy may slow down further, the latter of which is not currently priced in by the markets.
Will the ECB Also Raise Interest Rates in September?
According to a Reuters poll, 60% of economists expected an additional rate increase in 2026, likely in September. This is in line with market pricing.
“We do not expect any sharp moves, but rather a gradual adjustment of monetary policy, with an overall increase in benchmark rates of about 50 basis points to 2.50%. The next step could therefore come in September,” says Kastens of DWS.
BNP Paribas AM also expects another rate increase in September, but Tentori says that the “ECB will continue to frame policy as data dependent, and it is increasingly focused on second-round effects across wages, core inflation and broader price formation.”
BNP Paribas AM’s base case remains for two 0.25 percentage point hikes—in June and September—followed by an extended hold through the remainder of the forecast horizon to end 2027.
When Are the Next ECB Meetings in 2026?
- June 11, 2026
- July 23, 2026
- Sept. 10, 2026
- Oct. 29, 2026
- Dec. 17, 2026
What Could an Interest Rate Hike Mean for Bond Markets?
The eurozone government bond market has been highly volatile over the course of the year as interest rate expectations shifted from the possibility of further cuts to an increase following the outbreak of war in Iran.
Eurozone sovereign bond yields remain elevated—with the 10-year German Bund yield near 3.0%—reflecting higher issuance, fiscal concerns and an uncertain growth outlook. An increase in interest rates usually pushes yields higher and bond prices lower. Higher rates also make existing bonds—particularly those already issued during a period of high rates—less attractive.
According to BNP Paribas AM’s Tentori, investors are “highly sensitive to government bond prices and may demand higher yields,” amid an oversupply of bonds and rising inflation, not only due to the war in the Middle East, but also because of the development of AI, which is notoriously energy-intensive.
