11.06.2026 - ECB: back to rate hikes
Today, as widely expected, the European Central Bank (ECB) raised interest rates by 25 basis points to 2.25%. It marks the first rate hike in three years, as policymakers step up efforts to contain renewed inflation pressures, particularly those stemming from higher energy prices linked to the ongoing Iran conflict.
According to ECB President Christine Lagarde, there was broad consensus within the Governing Council to take this step.
During the press conference, Lagarde acknowledged that inflation is likely to remain above the central bank's 2% target even in 2027, underlining the persistence of price pressures across the euro area.
Markets:
Equities: European equities fell after the announcement
Bonds: Government bond yields across the euro area remained elevated and continued to trend higher.
Commodities: Precious metals lower with gold at USD 4’075, silver USD 63
Currencies: The euro weakened slightly against major currencies.
My View: The ECB's decision comes at a time when the European economy appears increasingly fragile. Growth remains weak, while higher borrowing costs are likely to add further pressure on businesses and consumers.
I therefore remain cautious on European equities. Germany, traditionally regarded as the economic engine of Europe, continues to struggle with numerous structural challenges, including excessive regulation, weak competitiveness, and sluggish growth. At the same time, the German economy remains highly dependent on energy prices.
Raising interest rates in an environment of already weak economic growth increases the risk that Europe could face a prolonged period of economic stagnation while inflation remains elevated, a combination that would represent a difficult backdrop for investors.
As the Iran conflict is likely to continue, Europe is going to face persistently higher energy prices, adding further upside risks to inflation.
In my view, investors continue to underestimate inflation risks and remain far too relaxed on the subject. Markets are still pricing in a relatively benign inflation outlook, despite mounting evidence that price pressures may prove much more persistent than many expect.
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