ECB Interest Rate Prep
On Thursday the 19th of March at 09:15 ET, the ECB is set to release the results of their latest monetary policy meeting.
Here are some views on what to expect.
General Expectations
Expectation from Analysts and Market Participants forecast the ECB to keep the Interest Rate and Deposit Rate unchanged at 2.15% and the deposit rate unchanged at 2%. With the high and low ranges supporting this.
Investment Bank Commentary
Goldman Sachs
Lower growth, higher inflation from the conflict in Iran. ECB officials broadly concurred that higher energy prices represented a “negative supply shock” for Europe. Members of the Governing Council expressed particular attention to the magnitude and persistence of the energy price increase but cautioned that it was “too early” and the situation was “too volatile” to draw reliable conclusions. Policymakers also focused on the risks of second-round effects from the increase in energy prices. In that respect, Executive Board member Schnabel stated that while the 2022 inflation surge had left certain scars, the stance of fiscal and monetary policies were less expansionary now.
No rush to change policy, but risks now towards hikes. Most policymakers stated that the ECB should “keep a cool head”, would “avoid hasty conclusions”, and was in “no rush” to change policy. Bundesbank President Nagel therefore backed a “wait-and-see” approach for the time being. That said, ECB President Lagarde and other officials stressed that the Governing Council would do “everything necessary” to keep inflation under control. In that regard, some policymakers—such as Bank of Estonia Governor Muller and National Bank of Slovakia Governor Kazimir—suggested that risks were now skewed towards rate hikes, and that the next increase could come earlier than anticipated.
ING
We don’t know if ECB President Christine Lagarde has a favourite actor, but if the run‑up to next week’s meeting was turned into a Hollywood film, Jodie Foster would be our pick – not as Clarice Starling in The Silence of the Lambs, but as the mother hiding from burglars in a panic room. For the ECB, the war in the Middle East and rising energy prices are the intruders threatening Lagarde’s ‘good place’. The key question for next week is what Lagarde and the rest of the Governing Council decide to do from inside their own panic room. By the time the ECB meets on 19 March, the macro backdrop will have shifted markedly since the last meeting. With the conflict in the Middle East, the risk of inflation undershooting – and any discussion of further rate cuts – should be firmly off the table. Gone is a scenario in which a stronger euro could push down the ECB’s own inflation forecasts for longer, leading to a more controversial debate on inflation undershooting and what it would mean for the ECB’s credibility.
Oil prices were already rising, and the outbreak of war in the Middle East likely coincided with the cut‑off date for the ECB’s latest forecasting round. But recent market moves will have rendered those projections outdated almost immediately. Like everyone else, the ECB can only work with a range of oil price scenarios. At this point, anything is possible – from a short-lived episode of higher oil prices and some supply chain frictions, to a full-blown energy crisis. The big question for the ECB is, therefore, no longer how to react to an inflation undershooting but rather how to react to another oil price shock. Tackling oil price shocks has been an important challenge for global central banks since the 1970s. In the case of the ECB, the thinking about how to react to oil price shocks has clearly evolved over the last 25 years.
For next week’s meeting, we don’t expect any rate moves. The latest round of staff projections will be less relevant than normal, being just one of many input variables for the meeting. Who cares about some percentage point model-based revisions of inflation or growth forecasts if the oil price can move $30/b in a few minutes? The ECB will, however, try to use its second most powerful policy instrument, words, to keep inflation expectations at bay. Sounding a bit more hawkish by, for example, stating that the ECB stands ready to act, is monitoring the situation very closely and would not refrain from any preemptive rate hikes, looks like the most likely outcome. In this context, we don’t expect Lagarde to repeat the phrase ‘good place’. There is still no reason for the ECB to panic – but installing a panic room within that ‘good place’ might not seem like such a bad idea for now.
Morningstar
The European Central Bank is expected to hold interest rates steady on March 19, despite fears of rising inflation in the eurozone following a surge in oil and natural gas prices. Sentiment has shifted considerably since Israeli-US attacks on Iran rattled global energy markets, with expectations for ECB rate cuts giving way to bets on rate hikes in 2026. Futures markets, which reflect investors’ expectations for future central bank policy rates in real time, now price in one to two 25-basis-point hikes through the remainder of 2026. “The ECB is likely to remain on hold at its meeting next week,” says Grant Slade, Morningstar’s international economist. He believes financial markets have greatly overreacted. “We don’t think the Middle East conflict markedly alters the outlook for eurozone policy rates in 2026, assuming the conflict remains relatively short-lived.” A further interest rate cut in late 2026 could still occur as the Middle East inflationary impulse dissipates over the next two to three quarters, he adds.
ECB staff will also provide a fresh set of quarterly macroeconomic projections at the March meeting. “Even if the current oil price shock were short-lived, it would still affect inflation with a delay—for example through supply chains or higher gas prices for consumers in the winter,” Brzeski says. “It’s time for a panic room in the ECB’s ‘good place’,” he added, referring to ECB president Christine Lagarde’s reiterated comments that inflation is “in a good place.” “The main takeaway from the governing council meeting will likely be that the situation is too uncertain. As long as the economy does not deteriorate significantly, there are strong arguments for keeping rates unchanged for the time being. The ECB’s second most important tool is words. And that is precisely the tool it will use next week. The key question will be whether the ECB’s language changes,” according to Brzeski.
Goldman Sachs
The incoming Euro area data (before the onset of the Iran conflict) have been broadly consistent with the December staff projections. But the sharp rise in energy prices since the outbreak of the war poses important risks to the outlook. We expect the staff projections for growth to be downgraded by 0.1pp in both 2026 and 2027 (to 1.1% and 1.3%, respectively). We look for a 0.3pp upgrade to headline inflation in 2026 (to 2.2%), a 0.1pp increase in 2027 (to 1.9%) and a 0.2pp reduction as energy prices normalise in 2028 (to 1.8%). But we expect limited changes in core inflation, with the 2027 forecast edging up 0.1pp. The staff are likely to publish an adverse scenario that explores the risks of persistently higher energy prices. Our expectation is that this analysis could look broadly similar to the December 2023 scenario, showing a sizeable hit to GDP and a large boost to headline inflation.
We expect the Governing Council to emphasise that it is well positioned to respond to the risks posed by the Iran war. The decision is likely to note that the Governing Council will do whatever is needed to ensure price stability but leave the formal guidance language unchanged. We expect the Monetary Policy Statement to emphasise the risks posed by the energy shock, stressing the importance of monitoring second-round effects. We expect the Governing Council to list both upside and downside risks to growth and inflation—without adopting a formal net risk assessment—but to emphasise the upside inflation risks more. In the press conference, we expect President Lagarde to stress uncertainty, optionality and the need for vigilance. She is likely to emphasise that policy is not in a “fixed place” and that the Governing Council is well positioned to respond to the unfolding shock. We would expect Lagarde to reiterate her recent comments that the economy has a better capacity to absorb shocks than in 2022. But we expect her to stress that the uncertainty created by the Iran war, noting that Governing Council members are more focused on the upside inflation risks, and that the ECB will monitor any signs of persistence and the implications for the medium-term inflation outlook.
The outlook for ECB policy depends importantly on the size, breadth and persistence of the energy shock. Our simulations support our forecast of unchanged policy rates unless the economy is pushed into a very adverse energy scenario. In this case, we would expect the Governing Council to deliver 3 sequential 25bp rate hikes starting in June (with a hike on April 30 possible in this scenario). Our probability-weighted rate path of different scenarios points to around one hike this year, below market pricing for two hikes.
