ECB signals April rate hike possible, but data still uncertain

The European Central Bank is signaling that an April move is possible, but policymakers are far from ready to commit. With euro zone inflation revised up to 2.6% in March from 2.5% in the flash estimate, officials in Washington said the bigger question is whether higher energy costs are becoming a broader wage-and-price problem.

The caution came as ECB chief economist Philip Lane said, “We will do what is needed,” while also arguing that whether the decision comes in one meeting or another is only a detail. Francois Villeroy de Galhau was blunter, saying on CNBC, “To bet on April would be premature at this stage.” He also said there is no predetermined calendar, underscoring that the central bank wants more evidence before deciding whether to tighten further.

The data explain the hesitation. Core inflation was 2.3% in March and services inflation held at 3.2%, both signs that price pressures are still sticky even though the latest headline move is being driven mainly by energy. In its March staff projections, the ECB lifted its inflation outlook to 2.6% for 2026 before easing to 2.0% in 2027 and 2.1% in 2028, with the revision tied to higher energy prices linked to the war in the Middle East.

The bank’s own March 18-19 meeting account showed how central that shock has become, saying the Governing Council was already splitting the outlook into phases before and after the Middle East war. Madis Muller said the ECB may not have enough data by the April 30 meeting to judge whether rates must be raised, while Martins Kazaks said market pricing looked reasonable. ECB policymakers are watching not just the level of inflation, but whether the energy shock spreads into demand and wages.

Markets have adjusted accordingly. Traders are now pricing only about a one-in-five chance of an April hike, while a move is still fully priced in by July and another increase later in the year remains possible. Reuters also reported that markets were leaning toward a hold at the April 29-30 meeting and a hike in June.

For U.S. investors, exporters and Fed watchers, the ECB’s hesitation matters well beyond Frankfurt. If Europe is still debating whether to tighten in the face of an energy shock, that points to a global interest-rate outlook shaped less by one-off price spikes than by the risk they seep into core inflation and growth. It also raises the odds that borrowing costs, mortgage rates and European demand stay restrictive for longer, a reminder that the next move from the ECB may be less about April than about how long inflation pressure lasts.