ECB June Rate Hike Imminent, With September Increase Also Probable: Economists

BENGALURU, June 3 (Reuters) – A 25-basis-point hike to the deposit rate at 2.25% on June 11 is all but certain for the European Central Bank, with economists also forecasting another increase in September as the central bank navigates the tension between energy-fueled inflation and a faltering economy. According to a Reuters poll, headline inflation remained elevated at 3.2% in May, significantly surpassing the ECB’s 2.0% goal. Concerns were heightened by core inflation, which strips out volatile food and energy prices, jumping to 2.5%—faster than anticipated—indicating that the repercussions of the war in Iran are increasingly influencing consumer prices.

Economic indicators, ranging from PMI surveys to official statistics, suggest the regional economy is decelerating. This trajectory could deteriorate further if the conflict persists beyond three months without a diplomatic breakthrough, particularly given the ongoing disruptions to the Strait of Hormuz, a vital conduit for global energy supplies. Despite these headwinds, the majority of policymakers have indicated that a June rate hike is inevitable, with many noting that even a peace agreement would not deter the move. However, economists argue that aggressive tightening is unwarranted given the softening labor market, economic weakness, and the fact that current rates already exceed those implemented during the 2022 inflation spike.

The poll, conducted from May 29 to June 3, revealed strong consensus among respondents: 74 out of 80 economists, or more than 90%, anticipate the June hike to 2.25%. This represents an increase in confidence compared to last month, when approximately 85% expected a rise, and April, when just over half predicted one.

“The ECB is determined not to repeat the error of underestimating inflation,” Bas van Geffen, senior macro strategist at Rabobank, stated. “At this juncture, the reputational cost of keeping rates too low likely outweighs the risks associated with hiking.” He added, “I currently foresee one or two additional hikes, though prolonged conditions could necessitate further action.”

Looking ahead, 49 of the 80 respondents (over 60%) expect one more rate increase this year, likely in September, a view that aligns with market expectations. This contrasts with last month’s data, which showed little agreement on the rate path by the end of 2026; while nearly a third of economists predicted one or no hikes, only a few anticipated three or more.

Dean Turner, chief euro zone and UK economist at UBS Global Wealth Management, described the strategy as prudent risk management rather than an intentional effort to stifle growth. “It makes sense to shift interest rates to the upper end of the neutral range to preempt any potential inflationary pressures building in the pipeline,” Turner explained. “The focus is on managing second-round effect fears, not deliberately slowing the economy.”

This outlook remains heavily dependent on inflation trends. With Brent crude futures trading approximately 40% above pre-war levels, poll medians project inflation will average 3.3% per quarter for the remainder of the year and 2.9% in 2026. These figures mark the fourth consecutive month of upward revisions in forecasts.

Source: Yahoo News Generated at: 2026-06-03 13:54:13 UTC