ECB to Deliver Final Rate Hike Next Month as Energy Prices Fuel Inflation
ECB Rate Hike Outlook and Economic Implications
By Indradip Ghosh
Energy Prices and Inflationary Pressures
BENGALURU, Aug 13 (Reuters) - The European Central Bank will raise interest rates once more next month, as high energy prices push inflation further from the bank's 2% target, and then keep policy unchanged through at least the middle of 2027, according to a Reuters poll published on Thursday.
What was initially expected to be a brief U.S.-Iran conflict has entered its sixth month with no end in sight, keeping oil prices around 25% above pre-war levels and lifting euro zone inflation to 2.9% last month.
ECB's Recent Policy Moves
The central bank delivered one hike in June but paused last month while signalling another rate increase was coming.
History shows the ECB has never stopped at a single rate increase and the combination of resilient economic activity, persistent price pressures and volatile energy markets strengthens the case for another move.
Market Expectations for September
An 83% majority of respondents, 57 of 69, in the August 10-13 Reuters poll expected the ECB to raise its deposit rate by a quarter point to 2.50% in September. That compares with 72% before the July meeting and about 65% in June.
"The longer oil prices stay at these levels, the higher they go, the greater the risk we see second-round effects developing. The ECB can't do anything about the second-round effects without seeing them but they can act early which is what the ECB has been doing," said George Buckley, chief European economist at Nomura.
"The risk is if the ECB did just one it would look like a fine-tuning exercise which everyone knows you can't really do in monetary policy. If they go once they're probably going to go again... Given how obvious a rate hike looked to the ECB Governing Council in June it makes me think another one is highly likely."
Long-Term Rate and Inflation Forecasts
Around 80% of economists expected the deposit rate to end this year at 2.50% while 63% said it would remain there until at least the third quarter of next year.
If realised, the tightening cycle would be the ECB's shortest since 2011 when it raised rates twice in response to an energy-price shock - a move many now view as a policy mistake.
Updated Inflation Projections
Economists lowered their 2026 inflation forecasts in July for the first time in six months but have reversed course. Median forecasts for the final two quarters of this year were raised 20 basis points to 3.0% and 3.2%.
Inflation was not expected to return to the ECB's 2% target until the third quarter of 2027 with core price pressures also seen strengthening over the coming few quarters.
Risks and Economic Growth Outlook
"Headline inflation will remain sticky at just above 2.5%. This is what backs our forecast for another rate hike ... The risk to our forecast for one more rate hike is towards further interest rate increases," said Melanie Debono, senior Europe economist at Pantheon Macroeconomics.
"The risk of second-round effects from high energy costs in services prices remains modest ... in core goods though that appears higher."
Euro Zone Growth Forecasts
Last quarter, the euro zone economy expanded by a stronger-than-expected 0.4% and is forecast to grow a further 0.2% and 0.3% this quarter and next.
That prompted a raise in the poll's 2026 growth forecast to 0.8% from 0.5% in the July survey, marking the first upgrade in seven months.
Additional Information
(Other stories from the Reuters global economic poll)
(Reporting by Indradip Ghosh; Polling by Jaiganesh Mahesh and Debrah Gomes; Editing by Susan Fenton)
