By François Rimeu, Senior Strategist, Crédit Mutuel Asset Management

For the sixth consecutive meeting since the last rate cut in June 2025, the European Central Bank (ECB) is expected to keep its deposit rate at 2%. Despite the conflict in the Middle East, which creates upside risks to inflation and downside risks to activity, the ECB is unlikely to adjust its policy in the short term. The scale and duration of the supply shock linked to the unprecedented disruptions in the Strait of Hormuz remain too uncertain to justify an immediate reaction. Nevertheless, the bank will continue to closely monitor the potential impacts, particularly on inflation expectations and second‑round effects.

Our expectations:

- The Governing Council should unanimously keep rates unchanged, maintaining the deposit rate at 2%.
- In response to the unprecedented disruptions in the Strait of Hormuz, Christine Lagarde is expected to reiterate that the outlook remains highly uncertain. Rising energy prices and supply constraints should lead to a downward revision of 2026 growth (compared with 1.2% in the December projections). However, she is likely to emphasize the resilience of European activity in the face of external shocks.
- Regarding inflation, the December scenario, which projected a temporary decline before a return to 2% in 2028, should be significantly revised upward for 2026 given the recent surge in energy prices, even if slowing demand is expected to partially offset the impact. In summary:

By maintaining its status quo, the ECB should reaffirm its communication principles: data‑dependent decisions, a meeting‑by‑meeting approach and no prior commitment to any future rate path. Christine Lagarde is expected to highlight the flexibility the ECB has, with rates close to neutral, to adjust its policy if needed. Finally, the tone should remain firm on inflation, with the ECB reiterating its resolve to prevent the energy shock from translating into persistent price pressures or second‑round effects.