ECB set for September rate hike with no appetite for more
European Central Bank policymakers are ready to raise interest rates at their next meeting in September to contain the side-effects of the Iran war but they have little appetite to signal further tightening after that, three sources told Reuters.
Three anonymous sources familiar with European Central Bank (ECB) policymaking tell Reuters that the central bank is prepared to raise interest rates again in September to curb the inflationary impact of the Iran war. ECB policymakers raised borrowing costs for the first time in nearly three years in June, aiming to prevent a war-induced surge in energy prices from engulfing the broader economy.
With inflation hovering around 3% and the euro zone economy displaying signs of resilience, central bank governors believe it's time to hike the policy rate from 2.25% to 2.5%, sources said under anonymity due to confidentiality. The ECB had previously included a 2.5% rate hike in its economic projections from June, viewing it as a signal of resolve to prevent a repeat of the severe inflation following Russia's Ukraine invasion in 2022.
Policymakers cite rising natural gas and petrol prices as key drivers of inflation, while also noting the euro zone's economy is performing better than anticipated, as evidenced by output data and business surveys. This suggests the ECB's inflation-reining efforts aren't unduly hampering activity. However, long-term inflation expectations remain firmly anchored at the ECB's 2% target, and there's no indication of further tightening in September, according to the sources.
Financial markets anticipate one or two additional rate hikes. The sources expect a clearer picture once August's inflation data is released next week, followed by updated ECB staff economic projections to be presented at the September 9-10 meeting.
Written by urgent.news from RTE News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
