ECB Raises Rates by 0.25 Basis Points: First Increase Since 2023

A Monetary Shift Driven by the Energy Shock

According to the monetary policy statement released on June 11, the ECB raised its rates for the first time in nearly three years to counter inflation that has once again deviated from the target. The euro area's harmonized consumer price index reached 3.2% year-on-year in May, up from 3.0% in April, driven by a 10.9% increase in the energy component over one year and a core inflation that rose to 2.5%.

The Eurosystem's new projections, released the same day, now anticipate an average inflation of 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028, while growth is revised downward to 0.8% in 2026 and 1.2% in 2027. Christine Lagarde reaffirmed a « meeting by meeting » approach, with no predefined path, emphasizing downside risks to activity and upside risks to prices, particularly through potential second-round wage effects. However, market expectations on the course of the cycle remain susceptible to rapid changes in light of upcoming macroeconomic publications and central bankers' speeches.

Sovereign Rates and Euro: A New Balance for Portfolios

Frankfurt's tougher stance comes at a time when the public and private financing needs of the eurozone are already under strain. The European Banking Federation recently estimated the additional investment need of the Union at 1.4 trillion euros per year, placing sovereign bond yield paths at the center of concerns for both issuers and investors.

An increase in key interest rates, combined with an upward revision of inflation projections for 2026 and 2027, mechanically tends to maintain upward pressure on eurozone sovereign yields and support the euro against currencies whose central banks are taking a less restrictive stance. Conversely, assets sensitive to long-term rates and the European economic outlook (listed real estate, heavily indebted growth stocks, cyclically-driven segments exposed to domestic consumption) are seeing their risk premiums reassessed. These dynamics remain conditioned by the evolution of macroeconomic data and the signals monetary policymakers will deliver in the coming weeks.

Oil, Transatlantic Divergence, and Geopolitical Variable

The ECB's shift is occurring in an environment where energy prices are particularly volatile. Brent was trading at $92.98 per barrel on June 11 before easing to $88 on June 12, following comments from Donald Trump hinting at a peace agreement and the reopening of the Strait of Hormuz. This easing remains fragile, as we mentioned in our coverage of the Brent retreat around $91: a breakdown in negotiations between Washington and Tehran or a major military incident could abruptly reverse the observed trend.

In the United States, data published by the Bureau of Labor Statistics indicates a more pronounced inflationary trend compared to the eurozone: the CPI index rose by 0.5% over the month and 4.2% over the year in May, with a core component at 2.9%, while the final demand producer price index jumped 1.1% over the month and 6.5% year-on-year, its largest annual increase since November 2022.

This divergence in inflation intensity between the two sides of the Atlantic, in a context where several Russian regions report fuel shortages related to Ukrainian strikes according to Reuters, fuels uncertainty about the joint trajectory of the Fed and the ECB and warrants a cautious reading of the arbitrages between monetary zones.