ECB Hawks Argue for Pre-Emptive Rate Hikes Amid Accelerating Credit Growth

The European Central Bank (ECB) released its July meeting accounts, revealing a Governing Council far more divided than its unanimous hold vote on July 23 suggested. The ECB's hawks argued that the current rate of 2.25% is not actually cooling the economy, citing business lending across the eurozone accelerating to its fastest pace in three years.

The annual growth in bank lending to non-financial corporations reached 4.0% in May, up from 3.4% in April, marking the fastest rate of expansion in three years. The hawks invoked the credit data as Exhibit A in their argument that monetary policy is not restrictive enough. They argued that if rates were genuinely restrictive, credit growth would not be accelerating to multi-year highs.

The ECB's June 2026 staff projections showed that rates needed to increase under every scenario, including the mildest possible energy-shock outlook. The hawks described the probability of any scenario in which a further hike would not eventually be warranted as low. They noted that growth in longer-term loans had been 'quite robust' alongside the headline acceleration.

The majority of the Governing Council did not dismiss the hawkish arguments but reframed them, distinguishing between a fragile and an acute situation. Under conditions that were considered fragile but not yet acute, they decided to move slowly, reflecting the option value of waiting through summer before acting.