Commerzbank’s Jörg Krämer expects the ECB to react to war‑driven energy inflation with at most one additional rate hike. Inflation is projected to rise above 3% by summer before easing, while Eurozone growth is revised down to 0.6% in 2026. Futures pricing of nearly three hikes this year is seen as excessive in the bank’s base scenario.

War lifts inflation but caps tightening

"Our simulation using a macroeconomic model shows that, in our baseline scenario, 2026 economic growth in the eurozone will be lowered by 0.4 percentage points due to the war in the Middle East. Since the economy performed slightly better than originally assumed at the end of 2025, we are not lowering our eurozone forecast for 2026 quite as sharply, namely from 0.9% to 0.6%. The eurozone economy is thus expected to grow more slowly than its potential output (1%), meaning we can no longer speak of an upswing."

"Inflation trends are crucial for the ECB’s interest rate policy. Our inflation model suggests that, in the baseline scenario, inflation will rise to just over 3% by summer before falling again. We now have the impression that the ECB will raise its key interest rate at the meeting on April 30."

"If the many doves on the ECB Governing Council were to prevent an interest rate hike in April, it would be at the cost of the Governing Council signaling a rate hike for the next meeting on June 11. However, there is unlikely to be more than one rate hike, because the oil price would fall again after the war ends, and the ECB Governing Council is dominated by doves who understand the desire of finance ministers from highly indebted countries for low interest rates."

"We consider the nearly three rate hikes priced into the futures markets through the end of the year to be unlikely, particularly in our base scenario."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)