• We will have enough data by April to determine if we need to act
• Or we can decide to wait and see for further developments
• Every passing day of the conflict contributes to an increase in inflationary risks
• A rate hike in April is certainly an option, but that is just one option on the table

The pressure is certainly on for the ECB, as key energy facilities in the Gulf region continue to be impacted by the US-Iran conflict. The good news this week is that the price for Dutch TTF gas futures has come off the boil at least. However, it is still holding at a level well above the ECB staff projections.

And with the central bank already sidelined amid more stubborn inflation pressures before the Middle East crisis, the latest developments in the past weeks just piles on top of that.

At the end of February, market players were not expecting any rate changes by the ECB whatsoever for this year. Currently, we’re seeing ~74 bps of rate hikes priced in by year-end.

The odds of a rate hike in April are at ~66% currently. And if not by then, the next meeting in June sees a 25 bps rate hike fully priced in already now. So, that is the backdrop that the ECB will be working with in the weeks ahead.