Economists Anticipate ECB Rate Hike in June as Stagflation Concerns Persist: Reuters Poll

A majority of economists surveyed in a recent Reuters poll anticipate that the European Central Bank (ECB) will raise interest rates at its June 2025 meeting, as the risk of stagflation — a combination of stagnant economic growth and persistent inflation — remains a significant concern for the eurozone. The poll, which gathered responses from leading financial institutions, indicates a cautious but determined approach by the ECB to address ongoing price pressures without derailing an already fragile economic recovery.

Stagflation Fears Drive Policy Expectations

The term stagflation, once a relic of the 1970s oil shocks, has re-entered the lexicon of policymakers and investors as the eurozone grapples with a complex economic environment. Inflation, while down from its 2022 peaks, remains stubbornly above the ECB’s 2% target. Core inflation, which excludes volatile energy and food prices, has proven particularly resistant to cooling. Simultaneously, the eurozone economy has shown signs of weakness, with manufacturing output contracting in several member states and consumer confidence remaining subdued. The Reuters poll underscores the central bank’s dilemma: raising rates too aggressively could stifle growth, but failing to act could entrench inflation expectations. The consensus points to a 25-basis-point hike in June, bringing the deposit rate to 3.75%, with further action possible depending on incoming data.

Market Reactions and Divergent Views

Financial markets have already priced in a significant probability of a June move, with bond yields in Germany and other core economies rising in recent weeks. However, the outlook is not unanimous. Some economists argue that the ECB should pause to assess the lagged effects of its previous tightening cycle, which has already seen rates rise from negative territory to multi-year highs. Others point to wage growth and services inflation as evidence that the battle against inflation is not yet won. The poll reveals a split between those who see a June hike as a necessary preemptive step and those who view it as a risk to an already slowing economy. The ECB’s own guidance has remained data-dependent, with President Christine Lagarde emphasizing that future decisions will be made meeting by meeting.

Implications for Borrowers and Savers

For households and businesses across the eurozone, a June rate hike would mean continued higher borrowing costs. Mortgage rates, already elevated, could rise further, putting pressure on homeowners and the housing market. On the positive side, savers may benefit from improved returns on deposits, though banks have been slow to pass on rate increases in full. The broader economic impact will depend on whether the ECB can successfully navigate a ‘soft landing’ — cooling inflation without triggering a recession. The Reuters poll suggests that while the path is narrow, it remains the central scenario for most economists.

Conclusion

The Reuters poll provides a clear signal that the ECB is expected to continue its tightening cycle in June, driven by persistent stagflation risks. While the decision is not yet final, the weight of expert opinion points toward another rate increase. The coming weeks will be critical as the ECB reviews fresh economic data, including GDP figures and wage negotiations, to calibrate its next move. For now, the message from the markets and economists is consistent: the fight against inflation is not over, and the ECB is prepared to act.

FAQs

Q1: What is stagflation, and why is it a concern for the ECB?
Stagflation refers to a period of slow economic growth combined with high inflation. It is a concern because traditional monetary policy tools — raising rates to fight inflation — can further weaken growth, creating a difficult trade-off for central banks.

Q2: How would a June rate hike affect eurozone consumers?
Consumers with variable-rate mortgages or loans would likely see higher monthly payments. Savings accounts might offer better returns, though the pass-through from ECB rates to deposit rates varies by bank and country.

Q3: Is the ECB’s rate decision final?
No. The ECB has emphasized a data-dependent approach. While the Reuters poll indicates a strong expectation of a hike, the final decision will depend on economic data released before the June meeting, including inflation and growth figures.