ECB on Hold: Reuters Poll Shows April Pause, June Hike Odds Surge

The European Central Bank (ECB) will likely keep interest rates unchanged in April. However, a new Reuters poll reveals that economists now see a significant increase in the odds of a rate hike in June. This shift in expectations marks a critical moment for the Eurozone economy.

ECB on Hold: The April Decision

The Reuters poll surveyed over 70 economists. A clear majority, over 80%, predicted the ECB would hold its key deposit rate at 4.00% during the April 11 meeting. This rate represents the highest level in over two decades.

Why the pause? The ECB needs more time. Policymakers want to see concrete evidence that inflation is moving sustainably toward their 2% target. Recent data shows inflation falling, but core services remain sticky. The central bank also worries about the impact of previous rate hikes on the struggling Eurozone economy.

This cautious approach aligns with ECB President Christine Lagarde’s recent statements. She has repeatedly emphasized that the Governing Council will remain data-dependent. The bank will not pre-commit to any specific rate path.

Key factors supporting an April hold:

• Sticky services inflation: Services prices continue to rise at a pace above 4%.
• Wage growth concerns: Strong labor markets and high wage settlements keep pressure on prices.
• Economic stagnation: The Eurozone economy barely grew in the final quarter of 2024.
• Geopolitical risks: Ongoing conflicts in Ukraine and the Middle East threaten energy prices.

June Hike Odds: A Sharp Increase

The most striking finding from the poll is the dramatic change in expectations for June. Just a month ago, economists gave a 40% probability to a June rate cut. Now, the median probability for a June hike stands at 55%. This is a complete reversal.

What changed? Two key factors drove this shift. First, inflation data for February came in hotter than expected. Headline inflation rose to 2.6%, up from 2.4% in January. Core inflation also remained stubbornly high at 3.1%.

Second, the ECB’s own staff projections now show inflation staying above target for longer. The bank revised its 2025 inflation forecast upward to 2.3%. This suggests the last mile of disinflation will be the hardest.

Table: Reuters Poll Expectations (March 2025)

Why the Hawkish Turn?

Several ECB policymakers have recently adopted a more hawkish tone. Bundesbank President Joachim Nagel warned against declaring victory too early. He stated that the fight against inflation is not yet won.

Similarly, ECB Chief Economist Philip Lane emphasized the need for caution. He pointed out that domestic price pressures remain strong. Services inflation, in particular, shows little sign of abating.

This hawkish consensus within the Governing Council makes a June hike increasingly plausible. The council members want to avoid repeating the mistakes of the 1970s. Back then, central banks cut rates too early, allowing inflation to become entrenched.

Market Reaction and Implications

Financial markets have already started to price in a higher probability of a June hike. The euro strengthened against the US dollar following the poll’s release. Bond yields in Germany and other core Eurozone economies also rose.

For investors, this means a repricing of risk. The ECB’s pivot from a potential cut to a likely hike changes the outlook for European equities, bonds, and currencies. Sectors sensitive to interest rates, like real estate and utilities, may face headwinds.

For businesses, higher borrowing costs will persist. Companies with high debt loads will face continued pressure on their margins. The ECB’s decision will also impact the cost of mortgages for millions of homeowners across Europe.

Key impacts of a potential June hike:

• Stronger Euro: A hawkish ECB typically supports the euro against other major currencies.
• Higher bond yields: Government and corporate bond yields will likely move higher.
• Slower economic growth: Tighter monetary policy will further dampen economic activity.
• Divergent global policy: The ECB would be hiking while the Fed is expected to cut, creating a policy divergence.

Comparing the ECB to Other Central Banks

The ECB’s path diverges sharply from the US Federal Reserve. The Fed is widely expected to begin cutting rates in the second half of 2025. The Bank of England also faces a similar dilemma, but markets see a higher chance of a cut there.

This divergence creates unique challenges. A stronger euro could hurt Eurozone exports. It makes goods more expensive for foreign buyers. The ECB must balance its inflation mandate with the need to support the export-oriented Eurozone economy.

Meanwhile, the Bank of Japan continues its tightening cycle. It raised rates for the first time in 17 years in March 2025. This creates a complex global monetary policy landscape.

Timeline of ECB Rate Decisions (2024-2025)

• September 2024: ECB cuts rates by 25 basis points to 3.75%.
• December 2024: ECB holds rates steady at 3.75%.
• January 2025: ECB holds rates at 3.75%.
• March 2025: ECB holds rates at 4.00% (after a surprise hike in February).
• April 2025: Expected to hold at 4.00% (per Reuters poll).
• June 2025: High probability of a hike to 4.25%.

What This Means for Consumers and Businesses

The ECB on hold in April offers a temporary reprieve. Borrowers will not face immediate increases in their loan costs. However, the rising June hike odds mean that relief will be short-lived.

For homeowners with variable-rate mortgages, this is a warning. They should prepare for potentially higher payments by mid-year. Fixed-rate mortgage holders are shielded from immediate changes, but new loans will become more expensive.

For businesses, the message is clear: plan for a higher-for-longer rate environment. The ECB is signaling that it will not ease policy until it is absolutely certain inflation is defeated. This could mean rates stay elevated through the end of 2025.

Conclusion

The Reuters poll delivers a clear verdict: the ECB on hold in April, but June hike odds are rising sharply. This shift reflects persistent inflation pressures and a hawkish central bank. The Eurozone faces a delicate balancing act. The ECB must tame inflation without crushing economic growth. For now, the data points toward another rate increase. Investors, businesses, and consumers must adjust their expectations accordingly. The era of easy money is firmly in the rearview mirror.

FAQs

Q1: What does “ECB on hold” mean?
A1: It means the European Central Bank will keep its key interest rates unchanged at its next meeting. In this context, it refers to the April 2025 meeting where no rate change is expected.

Q2: Why are June hike odds rising?
A2: The odds are rising because inflation data came in hotter than expected. Core inflation remains sticky, and the ECB’s own forecasts show inflation staying above its 2% target for longer.

Q3: How will a June ECB hike affect my mortgage?
A3: If you have a variable-rate mortgage, your monthly payments could increase. If you have a fixed-rate mortgage, you will not see an immediate change, but new fixed-rate loans will likely become more expensive.

Q4: What is the current ECB deposit rate?
A4: The current ECB deposit rate is 4.00%. This is the highest level since the creation of the euro.

Q5: How does the ECB’s policy differ from the US Federal Reserve?
A5: The ECB is expected to hold or hike rates in the near term due to persistent inflation. In contrast, the US Federal Reserve is widely expected to begin cutting interest rates later in 2025, creating a policy divergence between the two central banks.