While a June rate hike is widely considered a certainty—with support even from dovish members like Fabio Panetta and Yannis Stournaras—the path beyond remains uncertain. Markets are pricing in one or two additional hikes for the remainder of the year to prevent inflation from becoming entrenched. Reinhard Cluse, chief European economist at UBS, suggests that two targeted increases should suffice to maintain the ECB's credibility without triggering a deeper economic slowdown.

Inflation in the 21-country bloc reached 3.2% in May, showing signs of broadening into the services sector. Although food inflation has decelerated and long-term expectations remain tethered to the 2% target, the bank is wary of waiting for wage-price spirals to materialize, given their significant time lags. Consequently, the ECB is expected to revise its inflation forecasts upward while lowering growth projections in its upcoming update.

Financial stability remains a secondary but critical focus. While the ECB sees no systemic threat from private credit turbulence, it is intensifying its scrutiny of cyber risks linked to artificial intelligence. Board member Frank Elderson has signaled that banks will face stricter mandates for proactive defense measures as the sector grapples with evolving digital threats.