ECB Eyes June Rate Hike as Inflation Returns

European Central Bank board member Isabel Schnabel said the ECB should raise interest rates in June even if ongoing peace talks with Iran produce a deal, arguing that the conflict has lasted longer than expected and high energy prices are spilling into the broader economy.

The ECB has kept rates on hold for the past year, but discussed a hike last month after sharply higher energy costs pushed inflation well above its 2% target. Several policymakers have since signalled the need for action.

“Given the size and the persistence of the current shock, looking through is no longer an option in my view”, Schnabel told Reuters. “From today’s perspective, I think a rate hike in June will be needed.”

She said even an immediate end to the war would not remove the need for a monetary policy response, given the damage already done to energy infrastructure and global supply chains. Inflation reached 3% last month, with policymakers fearing that high energy costs could trigger a broader inflation spiral.

Financial markets have priced in at least two rate hikes. Schnabel also suggested that one increase may not be enough, though she said the ECB should reassess its stance at every meeting based on incoming data.

The eurozone economic outlook remains weak. The European Commission last week forecast growth of 0.9% in 2026, a sharp slowdown from last year.

(reuters, max)