Analysts at TD Securities see the European Central Bank (ECB) raising its policy rate by 25 basis points (bps) at this week's meeting but note that they can't rule out a bigger hike.

We wouldn't completely rule out a 50bps hike

"Easing financial system stress, persistent high inflation, strong wage growth, and avoidance of a winter recession are enough for the ECB to comfortably hike rates by 25bps in May and re-introduce guidance that more tightening is to come. We wouldn't completely rule out a 50bps hike should data ahead of the decision surprise significantly but that would come without guidance."

"The Bank Lending Survey (BLS) and inflation data will be important inputs in determining the size of rate hike at the May ECB meeting. We expect the BLS to show some easing in lending conditions, in part due to the improved economic outlook since Q4. Moreover, a decline in core and a steady headline rate (TDS: 6.9%, mkt: 7.0%) should skew risks further away from a 50bps hike."