European Central Bank policymakers are ready to raise interest rates at their September meeting to contain the fallout from the Iran war, three sources told Reuters. The move would take the policy rate to 2.50% from 2.25%, but policymakers see little appetite to signal further tightening after that.
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, three sources told Reuters. Even as they prepare the rate hike, the sources said policymakers have little appetite to signal further tightening after that.
The ECB raised borrowing costs in June for the first time in nearly three years to keep a war-fuelled rise in energy prices from spreading through the wider economy. With inflation running at nearly 3% and the Iran conflict still ongoing, governors now think the time has come to raise the policy rate again. The rate would rise to 2.50% from 2.25%, the sources said, speaking on condition of anonymity because the matter is confidential. An ECB spokesperson declined to comment.
Energy costs drive the case for a hike
The hike was already included in the assumptions behind the ECB's June economic projections and was seen as likely to signal the central bank's resolve to avoid repeating the brutal inflation surge that followed Russia's invasion of Ukraine in 2022, the sources added. Policymakers pointed to rising natural gas prices and high petrol prices at the pump as the key drivers of inflation, since the euro zone relies heavily on imported energy.
They also argued the euro zone economy has been faring better than expected, based on output data and business surveys, suggesting the effort to rein in prices has not put undue strain on activity.
No signal of further tightening
Long-term inflation expectations remain well anchored at the ECB's 2% target, and policymakers see no need to hint at additional tightening beyond September. Even so, financial markets expect one or two further hikes. The sources said they would have a fuller picture once August inflation data is published next week, followed by the ECB staff's updated projections at the September 9-10 meeting.
Source: Investing.com (Reuters)
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