September ECB rate hike: Is the case getting stronger?

ING recently noted that recent economic data and minutes from the European Central Bank’s July meeting bolster the argument for a rate increase next month. Global head of macro at ING, Carsten Brzeski, mentioned that a majority of ECB members seem supportive of a September hike. Brzeski pointed out the minutes revealed certain policymakers wouldn't have opposed raising rates in July, emphasizing the low probability that additional tightening would be unnecessary.

He also mentioned that acting sooner could be less costly. The Governing Council, however, decided that a gradual approach was the best option, keeping the possibility of waiting to assess future conditions open. ING pointed out that incoming information was better than anticipated, with downside risks to growth deemed less severe.

However, they noted that risks to inflation still loomed on the upside. ECB members also found no indication that second-round effects from higher energy prices had become embedded in wage and price trends, while longer-term inflation expectations remained stable. Since July, the bank reported that the eurozone had demonstrated surprising resilience to the Middle East conflict, in part due to Asian competitors being hit harder by the closure of the Strait of Hormuz.

ING questioned whether the ECB might go beyond September, cautioning that the institution could risk a recession over a supply-side shock.