The ECB withstands market pressure and keeps interest rates at 2%.

Analysts ruled out a change in the monetary policy roadmap at a time when the outcome and impact of the war in Iran on the economy and prices remain uncertain. Although the market has priced in three to four interest rate hikes this year, the institution led by Christine Lagarde has opted for caution and will wait for more information on whether the conflict is generating a temporary shock or could lead to a long-term energy crisis before making any decisions. The June meeting is shaping up to be key and could bring the first interest rate hike since September 2023.

According to Juan Villén, CEO of idealista/mortgages, “the ECB clearly does not want to rush into a preemptive rate hike that could serve to quell the already rising inflation, due to the prevailing economic sluggishness in Europe, and which a rate increase could only worsen.”

The first interest rate hike could come in June
Mortgages will become increasingly expensive
A lasting negative effect on the economy
ECB meeting schedule for 2026
The first interest rate hike could come in June

The next meeting of the ECB Governing Council, to be held on June 11, could be the date for the announcement of changes to the benchmark interest rates. Currently, the market assigns a probability of over 80% to an increase.

As Juan Villén emphasizes, "In the coming months, inflation will likely rise further—or remain at current high levels—which should lead the ECB to take action and raise interest rates in June, even if only by 0.25%. It is possible that the ECB is betting on a temporary inflationary shock, one that will not continue due to a solution to the Middle East crisis, and on weak domestic demand that will prevent the inflationary surge from continuing. We will see what ultimately happens, although what seems certain is that consumers will see their purchasing power diminished once again."

His forecast coincides with that of the investment bank Renta 4, which insists that the institution "should not rush into anything and should only raise rates if there are clear signs of unanchoring of inflation expectations (for which there is still insufficient data). As Christine Lagarde herself recently commented, the eurozone is currently between its baseline and adverse scenarios, which is not enough to justify raising rates."

Furthermore, he adds, “the current (supply) shock is very different from that of 2022 (supply and demand shocks, with the end of the COVID-19 pandemic), just as the interest rate situation is very different (neutral today versus negative rates in 2022). It is important to avoid repeating past mistakes: Jean-Claude Trichet—then president of the ECB—raised rates in 2008 and 2011 to curb a spike in inflation associated with rising oil prices, only to be subsequently forced to cut them sharply in the face of the major financial crisis and the European debt crisis.”

Although Renta 4 does not rule out a 25-basis-point interest rate hike, it believes that the move would occur later in the year, and maintains that the market “is adopting an excessively hawkish bias (almost four rate hikes already priced in by the market, compared to none expected before the crisis), given the potential negative impact on growth.”

JP Morgan AM, the asset management arm of the US investment bank, also believes the market has been “too aggressive” in its expectations of interest rate hikes. For now, it only anticipates a slight increase, provided the conflict in the Middle East does not become entrenched.

Bank of America also does not foresee many changes in monetary policy. Depending on how the war evolves and how it affects the economy and inflation, it anticipates two rate hikes at the June and July meetings.

CaixaBank, for its part, believes there could be two or three interest rate increases before the end of the year, which would bring the benchmark rate to 2.5% or 2.75%. According to the ECB's research department, the longer the conflict in the Middle East continues, "the greater the risk that rising energy prices will spread significantly across the entire price basket, increasing the persistence of inflation. To manage this uncertainty, we believe the ECB will want to move monetary policy to the boundary between neutrality and restriction (2.5%)," or even 25 basis points higher (2.75%) if inflation remains around the current 3%.

Mortgages will become increasingly expensive.

Regardless of forecasts regarding interest rates in the coming months, experts are clear that the consequences of the war on the mortgage market will become increasingly evident.