Brussels, Belgium – The European Central Bank (ECB) is poised to raise interest rates for the second time next week, a move that appears almost certain. This comes amid ongoing questions about the willingness of policymakers to implement a third increase later this year. The ECB is expected to raise rates by a quarter of a percentage point on Thursday, further cementing its position as the most hawkish of the G7 central banks, a move that has been widely hinted at. The debate then immediately shifted to the feasibility of another rate hike later. Policymakers will make their anticipated decision after the summer holidays, coinciding with the release of new quarterly forecasts. This comes against a backdrop of continued tensions and fighting in the Middle East and renewed fuel price increases in a region heavily reliant on energy imports.
Eurozone inflation is accelerating
Recent data showed that inflation in the eurozone accelerated to 3.3% in August. This marked the fastest pace of inflation in nearly three years and was significantly above the 2% target. In contrast to the relatively dovish stance of the US Federal Reserve, the European Central Bank was adamant about the need for proactive monetary tightening. While the latest inflation figures offered some relief after an unexpected slowdown in the core index, officials are downplaying the risks, keen to avoid a repeat of the criticism leveled at the European Central Bank for its delayed response to the cost-of-living crisis in 2022.
Expect a third increase
The debate over a third rate hike appears close; while Lithuanian central bank governor Gediminas Simkus argued that the September increase alone would be insufficient, his German counterpart Joachim Nagel adopted a more cautious stance. With investors pricing in a December rate hike, major institutions like JPMorgan and Société Générale have revised their forecasts, thus increasing the likelihood of further increases.
