ING expects the European Central Bank to keep interest rates unchanged at its 19 March meeting, while using firmer language on inflation risks. It links this shift to the Middle East conflict and rising oil prices, which recall the 2022 energy shock. The focus is expected to move away from any talk of rate cuts and towards inflation risks and inflation expectations. ING suggests the chance of inflation falling below forecasts is now less likely to shape the meeting.

Oil Prices And Inflation Risks

ING notes that oil prices were already rising and that new market moves may have made the ECB’s latest forecasts out of date soon after they were published. It says the ECB is likely to work with a range of oil price scenarios. ING says the risk of a wage‑price spiral currently looks small. It adds that a longer disruption of the Strait of Hormuz could push oil above $100 per barrel for several months, with knock‑on effects on transport, food prices, and supply chains. In that case, ING says the ECB could consider rate hikes, possibly one or two. It expects the ECB to use communication to keep expectations anchored, and does not expect Christine Lagarde to repeat the phrase “good place”. We saw this exact playbook in March of 2025 when conflict in the Middle East caused a sudden hawkish shift from the European Central Bank. The risk of an oil shock took rate cuts off the table and put the focus squarely back on inflation. That experience provides a crucial guide for the situation developing today.

Implications For Rate Volatility

A similar dynamic is now emerging as tensions in the South China Sea disrupt key shipping lanes, pushing oil prices higher. Brent crude has climbed over 12% in the last month, now trading at $87 a barrel and threatening to breach the psychologically important $90 level. This is happening much faster than markets had anticipated just a few weeks ago. This energy price pressure comes at a delicate time, as February’s Eurozone inflation data showed a sticky 2.6% annual rate, well above the ECB’s 2% target. We remember how the 2022 energy crisis led to a wage-price spiral, a scenario the ECB is desperate to avoid repeating. Therefore, any discussion of further rate cuts is likely to be shelved immediately. For derivative traders, this means implied volatility on EUR interest rate futures is likely underpriced. The market may still be positioned for a steady path of rate cuts this year, creating an opportunity to buy options that would profit from a sudden reversal or pause. The upcoming ECB press conference is now a major catalyst for a potential repricing. The focus should be on short-term interest rate options, such as those on Euribor futures. We believe traders should consider positions that benefit from a rise in volatility and a halt to the recent fall in short-term rate expectations. This strategy hedges against the risk that the central bank is forced to use hawkish language to anchor inflation expectations, just as it did last year. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account