The signals sent by the president and a member of the board prepare for an increase this Thursday, while inflation forecasts could be revised upwards.
Christine Lagarde indicated in April in Frankfurt that she had “discussed at length an increase in interest rates” during the press conference following the meeting of the Governing Council. A few weeks later, Isabel Schnabel, member of the management board since 2020, estimated: “In current conditions, I think that an increase in June will be necessary”. According to the consensus relayed by the economic press, the ECB should increase its deposit rate from 2.00% to 2.25%, thus putting an end to a long period of stability since the last increase in September 2023.
The expected increase of 25 basis points would make the ECB one of the first major central banks to tighten its monetary policy in the face of renewed inflation, before the Bank of England and the American Federal Reserve, whose decisions are scheduled for next week. Boursorama reported on June 9 that “inflation risks are resurfacing”, while BFM Business spoke of a risk of a “delayed inflation shock” linked to the war in the Middle East. Philip Lane, chief economist, warned that Thursday’s new inflation forecasts could be revised upwards under the effect of persistently high energy prices.
Inflation fueled by the energy shock
In its decisions of April 30, the Governing Council highlighted that the war in the Middle East had caused a sharp increase in energy prices, the impact of which will depend on the intensity and duration of the shock as well as its indirect and second-round effects. Les Échos notes that the closure of the Strait of Hormuz has caused oil prices to jump. In this context, euro zone inflation reached 3.2% in May, far from the medium-term target of 2%.
On March 19 and April 30, the Governing Council kept the three key rates unchanged, while noting upward risks to inflation and downward risks to growth linked to the conflict. He recalled that inflation was around its target of 2% before the surge in energy prices and that the economy had held up well. The European Commission has also revised its 2026 growth downwards, from 1.2% to 0.9%, accentuating the challenge of balancing price stability and supporting activity.
An increase in key rates cools the economy via bank loans, with the expected effect of a slowdown in prices and activity. The cost of credit for households and businesses would increase, with priority being given to variable rate loans and new bond issues, particularly in countries where these credits are heavy.
A high-voltage press conference
The exercise will be particularly delicate for Christine Lagarde, whose interventions will be scrutinized to determine whether this gesture opens a new cycle of increase or constitutes a preventive adjustment. With the ECB leading the tightening sequence, his words will carry even more weight as the Bank of England and the US Federal Reserve meet the following week.
