For those who were still betting on an accommodating ECB in 2026, the message of March 19 fell like a cleaver. Christine Lagarde confirmed that key rates would be maintained for the ninth month in a row, but it was above all the tone of the speech and the revision of projections that left their mark. The central bank is no longer talking about cuts - it's starting to talk about hikes. 🚀
🔍 What's going on?
Meeting in Frankfurt on Thursday, the Governing Council left all three key rates unchanged: deposit rate at 2.00%, main refinancing rate at 2.15%, marginal lending rate at 2.40%. Levels frozen since June 2025, and clearly not about to move in the direction markets were hoping for at the start of the year.
But the real shock is elsewhere. The ECB has abruptly revised its projections: average inflation in the eurozone is now expected to 2.6% in 2026, compared with a return to around 2% projected just three months ago. Growth, meanwhile, has been revised downwards: 0.9% in 2026 versus 1.2% previously. This is exactly the scenario economists have feared since the outbreak of the Iran/USA-Israel conflict at the end of February: inflation accelerating and growth slowing at the same time. The word no one likes to utter is starting to circulate: stagflation.
At the press conference, Lagarde came out with a formula that spoke volumes: "We are both well positioned and well equipped to deal with a major shock in the making." Translation for traders: the ECB stands ready to act, and not necessarily in the direction of easing. Markets have understood perfectly - expectations now incorporate two 25bp rate hikes this year, with around 50% probability for a third. Six months ago, the consensus was for cuts. The complete turnaround has taken place in the space of a few weeks.
💡 Why it matters
Because this March 19 officially marks the end of the monetary easing cycle that began in mid-2024. The last ECB cut was in June 2025, and we'll probably have to wait until 2027 - or even later - to see one again, barring a rapid ceasefire in the Middle East.
The mechanism is implacable: with Brent crude jumping from $72 to over $110 since the end of February, and the Strait of Hormuz still partially blocked, energy-imported inflation is mechanically spreading to the entire price chain. The ECB's economic bulletin no. 2/2026 even went so far as to publish a stress scenario with a barrel of oil between $90 and $100 and gas at €60/MWh - in which case, eurozone growth would fall to 0.8% and unemployment would start to rise. Except that we're already above these thresholds for oil, so the black scenario is less theoretical than expected.
Carsten Brzeski (ING) sums up the new hierarchy of risks: he now expects "one or two 25 basis point hikes between now and the end of 2026, especially if the Strait of Hormuz remains blocked for several months". The other camp, represented in particular by Grant Slade (Morningstar), believes that the market is overreacting and that a downturn remains possible between now and the end of the year if the situation calms down quickly. But this camp is fast becoming a minority.
The contrast with Germany is interesting: despite the rotten global context, the country still benefits from massive defense and infrastructure spending, and low eurozone unemployment (6.1%, an all-time low) limits the risk of a hard recession. The ECB has some slack - but not enough to let its guard down.
📊 Our view
We'll say it clearly: for fixed-income and bond positions, the narrative has completely flipped, and those who remained on "long duration betting on ECB cuts" are bleeding. Eurozone sovereign yields are tightening, and until Ormuz has reopened properly, there's no fundamental reason to return massively to long bonds.
Inversely, on EUR/USD, it's more subtle than you might think. Theoretically, ECB hikes should push the euro higher. Except that the Fed is in the same configuration (FMI just said there was "virtually no room" for Fed cuts in 2026), so the rate differential isn't moving all that much. The euro remains sandwiched between a cautious ECB and a still-solid dollar. We're playing it small, avoiding strong directional bets.
For European equities, the reading is more contrarian than it seems. Rate hikes + slowing growth are rarely good for valuations. Paradoxically, however, energy and defense stocks (TotalEnergies, Thales, Dassault Aviation) are firing on all cylinders against this backdrop. Our take: avoid highly indebted cyclical stocks (listed real estate, certain heavy industries), keep some exposure to energy, and start discreetly looking at the banking sector, which historically benefits well from an environment of rates that remain high for longer.
For savers, it's less fun: with the Livret A at 1.5% and inflation at 1.7% in March, real yield has officially moved into negative territory. Not the time to let too much cash sleep on regulated supports.
✅ To remember
BCE holds rates on March 19, 2026 for the ninth consecutive month
Deposit rates at 2.00%, refi at 2.15%, marginal at 2.40%
Inflation 2026 revised to 2,6% (vs. 2% previously projected)
Growth 2026 lowered to 0.9% (vs. 1.2%)
Markets incorporate 2 rate hikes in 2026, 50% proba for a 3rd
Lagarde: "well positioned and well equipped to deal with a major shock in the making"
Next ECB meeting: April 30, 2026
And you, do you believe in ECB rate hikes this year, or are you team "rapid de-escalation and return to cuts as soon as the autumn"? The debate is sharing analysts' desks, and all bets are off.
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