MNI ECB Preview: The Start Of A Measured Adjustment

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Executive Summary

• The ECB is fully expected to deliver a 25bp rate hike on Thursday, bringing the deposit rate to 2.25%, having been on hold since the end of its easing cycle back in June 2025.
• With a US-Iran ceasefire agreement still elusive, the primary message from speakers has shifted from not pushing back on market pricing to more explicitly endorsing such a move.
• With a subsequent hike priced for September, expect most attention on July hike prospects (~10bp priced).
• Since the April decision, the outlook has strayed further away from the baseline scenario presented in March, giving officials confidence in delivering the first of two rate hikes embedded in those projections.
• Although it is still too early for second round inflation effects to be observed in the data, the majority of officials view the costs of a hike as limited relative to the cost of waiting longer, wanting to emphasise credibility in the inflation target.
• That said, a familiar meeting-by-meeting and data dependent approach is expected to be maintained, with growth concerns potentially limiting scope to guide for additional hikes than the market is currently pricing at this juncture.
• Updated projections for this meeting are likely to incorporate a curve with ~65bp of hikes and should show upward revisions to inflation alongside downward growth revisions (core +0.2pp, GDP -0.2pp in 2027).
• The median case across 27 analysts reviewed below is for two hikes this year before holding, but with a wide range to 2027 views as some expect a quick reversal back towards 2% and in one case lower.