ECB officials hint at rate hike in April: If data worsens, action is inevitable

Several officials from the European Central Bank (ECB) have issued hawkish signals in succession, and the possibility of an interest rate hike in April is rising. Against the backdrop of the Iran war driving up energy prices and a complex inflation outlook, the ECB's policy path has undergone a critical turning point.

Gabriel Makhlouf, a member of the ECB Governing Council and Governor of the Central Bank of Ireland, stated on Friday that if the data shows it is necessary, an interest rate hike in April is not impossible, while emphasizing that "the next meeting will definitely be an active one."

Joachim Nagel, President of the Deutsche Bundesbank, pointed out on the same day that if inflationary pressures continue to build, the ECB may need to take action as early as April. According to Bloomberg, citing informed sources, officials have internally regarded an interest rate hike in April as a realistic option.

The market has already adjusted its pricing. According to data from the London Stock Exchange Group (LSEG), the current market prices the probability of an interest rate hike in April at about 50%, while the probability for June has risen to 80%. JP Morgan, Morgan Stanley, and Barclays all raised their forecasts for the ECB's policy path on Thursday, expecting multiple rate hikes within this year.

Official Statements: Data-Dependent, Clear Hawkish Bias

Makhlouf was cautious in his remarks during an interview with Bloomberg Television but sent clear signals. He stated that he "fully understands" the market's bets on two rate hikes this year—this also aligns with the ECB's baseline scenario—but emphasized that policy-making will remain calm and prudent.

"If the facts indicate that we must take action, we will absolutely take action," he said, "but ultimately, it depends on the data. We are six weeks away from the next decision, which is a long time in the current shock's time dimension."

Makhlouf also pointed out that there is currently no inclination towards tightening in the ECB's policy stance, but there is "extra close attention" to energy prices, and the ECB will respond based on the need to achieve the 2% price stability target.

Nagel's statement was more direct, "Given the current situation, it is foreseeable that the medium-term inflation outlook may worsen, and inflation expectations may continue to rise, at which point a more restrictive monetary policy stance will likely be necessary."

Institutions Raise Forecasts: Up to Three Rate Hikes in Sight

In response to the shift in policy signals, major Wall Street institutions quickly revised their expectations.

According to Reuters, both Barclays and JP Morgan expect the ECB to raise interest rates three times this year, each by 25 basis points, with the timing set for April, June, and July, at which point the deposit facility rate will rise from the current 2% to 2.75%. Morgan Stanley predicts that the ECB will raise rates once in June and once in September, pushing the rate up to 2.5%.

Previously, the ECB maintained its key interest rate at 2% as expected on Thursday, but ECB President Christine Lagarde warned that inflation risks make the outlook "significantly more uncertain." Newly released forecasts indicate that inflation will exceed the 2% target this year, while economic growth will slow.

The shift in the direction of these forecasts is significant—many institutions had previously expected the ECB to keep rates unchanged until 2026, but have now fully reversed their stance

Differences Remain: The Path of Tightening Is Not Without Controversy

Not all voices point to interest rate hikes. Former European Central Bank President Jean-Claude Trichet stated in an interview with CNBC on Friday that the ECB's approach of assessing the situation at each meeting is "very wise," and believes that Europe has not yet reached the critical point of stagflation; the current decline in growth "is not severe enough."

UBS economists wrote in a report on Thursday that they expect the ECB to keep interest rates unchanged rather than tighten policy, a judgment that "contradicts market expectations."

Market participants have also highlighted the risks of excessive tightening. Richard Carter, head of fixed income research at Quilter Cheviot, pointed out that "any surge in inflation will naturally drag down economic growth, so it is crucial for the ECB not to over-tighten and to remain focused on the economic outlook." "This is extremely difficult in the context of such a volatile situation in the Middle East."

Ultimately, the duration of the war will be the core variable influencing the ECB's decision-making. Until the data becomes clear, the direction of the April meeting remains uncertain