"Experts" and "the market" have a huge difference in opinion! The European Central Bank is at a crossroads of interest rates: should they hold steady in 2026 or raise rates quickly before June?

Notice that economists believe that despite the re-emergence of inflation threats, the European Central Bank will still maintain interest rates unchanged until 2027. A survey conducted from March 6 to 11 showed that only 7% of respondents expect interest rate changes before December, and less than a third believe that any form of tightening will occur before the end of next year. This view is contrary to market expectations - current market pricing has already factored in the expectation of a 25 basis point increase in deposit rates to 2.25% by July and sees a two-thirds likelihood of another rate hike to 2.5% by the end of the year. The duration of the Iran war is at the core of disagreement, with most respondents predicting that the war will be short-lived. Economists predict that the European Central Bank interest rates will remain unchanged. Since the end of the opinion poll, Iran's newly appointed Supreme Leader Ayatollah Mujtaba Khamenei has stated that the Strait of Hormuz should remain closed; if the United States and Israel persist in attacking, Tehran will seek to open other fronts in the war. Meanwhile, U.S. President Trump has stated that stopping Iran from acquiring nuclear weapons and eliminating its threat is of greater importance to him than oil prices. Following the unprecedented surge in prices caused by the 2022 Russia-Ukraine conflict, decision-makers led by President Lagarde are highly vigilant about the possibility of another inflation shock. Officials have stated that they are prepared to intervene, but are currently urging patience as they assess conflicting signals about how long the conflict will last. Bill Divine, senior eurozone economist at the Bank of the Netherlands, said, "It is still too early to draw strong conclusions based on current data. The board will remain vigilant about the impact of inflation and express willingness to act when necessary." The Iran war has raised energy costs and inflation risks. Three-quarters of respondents believe that the European Central Bank's next move is likely to be a rate hike - higher than the 59% in the last survey. Nearly 60% think that the risk of upward inflation is stronger than before, and 70% now see unexpected upward movements above the target value of 2% as a greater threat than downward risks. Despite these shifts, no economists are predicting a change in deposit rates next week. About two-thirds say it is too early to judge if the war will fundamentally change the economic outlook. Economists David Powell and Simone Deler Giaye said, "Our core forecast scenario remains that rates will stay unchanged this year, although we now remove the downward risks that were prevalent before the energy shock. If the shock persists and continuously rising inflation expectations show entrenched signs, it is still possible to hike rates this year." Much of the uncertainty stems from the duration of the war. While President Trump initially mentioned a span of "four to five weeks," later indicating it could end "soon," Israeli Defense Minister Israil Katz said the fighting will continue until "victory" is achieved. Analysts are more inclined to Trump's timetable. More than half expect the conflict to last three to five weeks, with estimates ranging from one to two weeks to ten months. While the board insists on the principle that "data will guide decisions," some members are already contemplating their outlook. Peter Kazimir from Slovakia said that a rate cut is "definitely not on the table," and a rate hike "may be closer than many imagine." Bundesbank President Joachim Nagel and Madis Muller of Estonia have also expressed hawkish tones. Lagarde herself promised to ensure consumers "don't suffer the kind of inflation surge we saw in 2022 and 2023." The ECB's delayed response at the time led to price increases exceeding 10%. Anjali Shchepanyak, senior economist at Nomura Securities, said, "It is important to remember that the ECB is now more sensitive to supply shocks." Eurozone economic prospects are uncertain. Officials will closely monitor wage trends, which were the main driver of inflation in the last round. SEB economist Pia Fromlet said, "The longer the high energy prices persist, the higher the risk of second-round effects and medium-term inflation impact." Analysts predict that the ECB will raise its inflation expectations for this year, and nearly half expect a stronger reading for 2027. But they are uncertain whether core price pressure will also rise. The European Central Bank's latest forecast may respond to the Iran war. Respondents are even more uncertain about the short-term economic growth impact. Nearly 80% say that the information contained in the quarterly new forecasts released alongside next week's policy decision will be "limited" or "extremely limited." More than two-thirds believe this is due to the way the forecasts were prepared, with many pointing out that the market data cut-off date for inputting into models - according to past practice - should have been before the outbreak of the war. "The updated staff forecasts at this stage are unlikely to objectively reflect the impact of the Iran war," said Dennis Shen, lecturer at the Berlin Industrial University School of Management. "The ECB may feel like it's flying blind." The European Central Bank is expected to raise interest rates next.