Inflation threats heat up but ECB to keep rates on ice this year, say economists: Reuters poll

ECB Expected to Maintain Rates in 2024 Amid Rising Inflation Pressures

ECB Rate Outlook Remains Steady Despite Inflation Risks

By Indradip Ghosh

Market Expectations and Policy Signals

BENGALURU, March 13 (Reuters) - Long-held expectations the European Central Bank will keep its deposit rate steady through the end of this year remain intact among economists polled by Reuters, despite rising inflation threats from war in the Middle East.

Global oil prices surged as much as around 70% after the U.S.-Israel war on Iran began on the last day of February, putting the euro zone's steady inflation outlook on notice and reviving memories of the cost-of-living crisis during the pandemic.

Policymakers have acknowledged the threat from rising energy costs and signalled they were ready to act if inflation shows signs of sticking. Germany’s rate‑sensitive 2-year Schatz yield has jumped around 40 basis points, hinting markets are expecting tighter policy soon.

Interest Rate Futures and Economist Polls

Interest rate futures are fully pricing a rate hike by end-July and about a 55% chance of a second one by end-December. But economists polled by Reuters March 9-13 stuck to their long‑held view of steady rates.

Over 90% - 67 of 72 - expected the ECB to hold its deposit rate at 2% through 2026 - an outlook unchanged since October. Only three predicted a hike this year while two expected at least one cut.

However, that outlook is on shaky ground.

Expert Commentary on ECB Strategy

"There is still no reason for the ECB to panic but installing a panic room within that 'good place' might not seem like such a bad idea for now," said Carsten Brzeski, global head of macro at ING.

"At this point anything is possible from a short-lived episode of higher oil prices and some supply chain frictions to a full-blown energy crisis. The big question for the ECB is therefore no longer how to react to an inflation undershooting but rather how to react to another oil price shock."

Inflation and Economic Forecasts

With oil prices still up around 45%, economists have nudged up their just-below-2% inflation outlook to reflect the energy shock.

Headline inflation, which rose to 1.9% last month from 1.7% in January, is expected to average 2.3% next quarter, up from 1.9% in this one - an uptick from 1.9% and 1.7% predicted last month. For the whole year it was predicted to average 2.0% compared to 1.8% in last month’s poll.

Currency Movements and Additional Pressures

A weakening euro, down nearly 3% against the dollar since the war began, might add to inflationary pressures. 

The central bank is also due to provide updated economic forecasts on March 19.

Analyst Insights on ECB Communication

"The ECB is ready and willing to act to avoid a repeat of the 2022-2023 inflation shock. Saying this loudly and clearly might be the best way of ensuring that inflation expectations remain well anchored," noted Mark Wall, chief economist at Deutsche Bank.

"2026 is not 2022, but the risk of persistence is not negligible."

Euro Zone Growth Projections

The growth outlook was steady. The euro zone economy, which grew 0.2% in the final quarter of 2025, is expected to expand between 0.3%-0.4% through 2026, according to the latest poll.

Full-year growth is forecast at 1.2% in 2026 and 1.4% in 2027, an outlook broadly unchanged since August.

Additional Information

(Other stories from the Reuters global economic poll)

(Reporting by Indradip Ghosh; Polling by Jaiganesh Mahesh and Debrah Gomes; Editing by Hari Kishan, Ross Finley, Peter Graff)