ECB Signals Another Rate Hike Likely in September
ECB minutes from July indicate another rate hike is likely in September to combat inflation and fallout from the Iran conflict.
The European Central Bank's (ECB) account of its July policy meeting reveals that policymakers considered the decision to hold interest rates steady as a temporary "pause" rather than the end of the tightening cycle. The minutes, released on Thursday, indicate that another rate increase was already being considered, potentially as soon as September.
The ECB had raised rates in June for the first time in nearly three years, aiming to prevent a war-led surge in energy prices from becoming entrenched in the economy. At the July 22-23 meeting, the bank opted to hold rates, but the account shows that a further hike would likely be necessary unless the inflation outlook improved significantly.
However, the ECB's communication at the time deliberately avoided committing to a September hike, in case the inflation outlook changed. Sources have since indicated that these doubts have cleared. With inflation near 3%, the ongoing Iran conflict, and signs of economic resilience in the euro zone, policymakers are reportedly ready to raise the policy rate to 2.50% from 2.25% at the September 9-10 meeting.
The minutes also stressed the importance of not suggesting that the pause meant the end of the tightening cycle. ECB board member Isabel Schnabel reiterated earlier this week that data would determine how much further borrowing costs need to rise.
Recent economic data supports the case for further action. Output and business surveys show the euro zone economy performing better than expected, suggesting the ECB's efforts to curb price hikes are not unduly straining activity. Additionally, data released on Thursday showed banks increasing corporate lending at their fastest pace in over three years, with a 4.4% rise in July.