ECB Confirms 25bps Hike at September Meeting Amid Ongoing Tensions

The European Central Bank (ECB) is expected to raise interest rates by 25 basis points at its upcoming meeting on September 10, according to Continuum Economics. This decision comes despite recent data and ongoing tensions between Iran and the US, which some might have hoped would lead to a reversal in the rate hike bias.

The August Consumer Price Index (CPI) readings were largely as expected, with headline inflation at 3.3% and core inflation easing to 2.4%. However, energy prices remain a concern, particularly natural gas prices, which are still elevated due to low inventory levels in Europe.

Continuum Economics notes that while the ECB's baseline scenario for oil prices is being met, EZ natural gas prices are more in line with the adverse scenario. Despite this, the forecasters believe that recent data and ongoing hostilities do not argue for a U-turn in the rate hike bias.

The September 10 meeting will likely see a 25bps hike, but the ECB is also expected to signal a less hawkish forward guidance, suggesting no further hikes in 2026. However, Continuum Economics sees a different story for 2027, predicting two 25bps cuts down to 2.00%.