Playing by the (policy) rules: Why ECB tightening is warranted

Research evidence excerpt

Playing by the (policy) rules: Why ECB tightening is warranted

Deutsche Bank

Research

Europe Economics Date

23 June 2026

Focus Europe

Playing by the (policy) rules: Why ECB

tightening is warranted

Michael Kirker

The ECB has embarked on a path of measured policy tightening, with President

Economist

Lagarde describing June's 25bp hike as "robust" but not "forceful." To assess the +44-20-754-72237

appropriate trajectory of policy and the potential quantum of further hikes, we have

applied a suite of simple policy rules to the ECB's own staff projections. This report Mark Wall

Chief Economist

shows that the ECB's own outlook for inflation and growth warrants some further

+44-20-754-52087

policy tightening ahead, even after the recent US-Iran MOU announcement.

Conclusions and takeaways:

n Further policy tightening is warranted: The ECB's June rate hike was

robust, supported even by the milder scenario. Using the ex-energy HICP

forecasts, the median policy prescription under the baseline scenario is

consistent with rates rising to roughly 2.75% by end-2026 (consistent with

two more hikes). Or under the milder scenario, the median prescription

suggests rates topping out at a little less than 2.50% at the end of this year

(more or less consistent with one more hike).

n June's revisions to the baseline projection warrant some further policy

tightening: The revision to inflation and activity between the March

baseline projection and the June projection boost the prescribed path of

policy rates by 25bp to 50bp on average across the various rules. Between

March and June, market pricing moved to price in an additional 25bp policy

hike this year – broadly consistent with the policy rules.

n Rules are only a guide not a script: While policy rules provide a guide for