UBS believes that rate hike pricing in the market is too premature and expects that the European Central Bank will not raise rates hastily before the end of the year.

Golden Ten Data reported on April 17 that a UBS research paper indicated that although the European Central Bank maintains a hawkish stance, it is expected to keep interest rates unchanged by the end of the year. This week, ECB President Lagarde stated that rising energy costs have caused the eurozone to deviate from the central bank's baseline scenario outlook, and the ECB is currently weighing its options. Considering the ECB's inflation mandate and its forecast that the conflict with Iran will have a greater impact on inflation than on growth, current market pricing suggests the ECB will raise interest rates twice before year-end. However, the current economic backdrop is markedly different from when the Russia-Ukraine conflict erupted in 2022. The ECB's policy only recently returned to a neutral stance, and the labor market has remained weak. Given the risks posed by the conflict to growth prospects and the tightening financial conditions already seen in the bond market, we believe the ECB is unlikely to raise rates hastily and will most likely keep rates unchanged by the end of the year.