ECB: Cautious as inflation edges higher – BNY

BNY reports that European Central Bank (ECB) officials are signaling a preference to hold rates at the April meeting, despite Eurozone inflation rising to 2.6% year-on-year in March. Policymakers stress the need for more data given Iran-related growth and oil risks. Markets still price two hikes later in 2026, leaving EUR/USD supported but sensitive to evolving ECB guidance.

Two hikes priced despite April caution

"Interest rate policy is a key area of difference for EU vs. U.S. outlooks, with two rate hikes priced for the ECB and just under one rate cut for the U.S. The shift today is that expectations of a quick April hike from the ECB are unwinding as central bankers speak at the IMF meetings and push back against acting in haste. Nevertheless, March CPI of 2.6% y/y is higher than expected and above target."

"ECB officials are leaning toward holding interest rates steady at their April 29-30 meeting, delaying decisions amid uncertainty over the impact of the Iran war on economic growth and inflation. Despite a March rise in headline inflation to 2.6% y/y in the euro area, underlying price pressures remain limited."

"ECB President Christine Lagarde has emphasized agility without a bias toward hikes, while Governing Council member François Villeroy de Galhau has called for more data before acting, citing risks from volatile oil prices and potential negative effects on demand and growth."

"The ECB’s Isabel Schnabel has said the ECB can afford to take time to analyze the Iran shock and does not want to impose unnecessary costs on the economy. Investors still anticipate two quarter-point hikes later this year."

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