ECB May Hike Rates Again in September Despite Improved Outlook

The European Central Bank (ECB) may need to raise interest rates again in September, even if the economic outlook improves. According to Slovak central bank chief Peter Kazimir, at least one more rate hike is required to contain inflation, and a deterioration in the outlook could warrant more tightening than expected.

Kazimir, an outspoken policy hawk, stated that 'very convincing' economic data and geopolitical developments would be needed in the coming weeks for him not to advocate for a move in September. The ECB left rates unchanged last week but hinted at a rate hike due to surging oil and gas prices.

Kazimir emphasized the need for preemptive action, saying that second-round price impacts from inflation have yet to materialize, but policymakers must act before they do. He noted that 'they often form quietly' and can be costly to reverse.

Financial markets currently expect at least two more rate hikes from the ECB, with the first move fully priced in by October and the second by March. However, these expectations are highly volatile and move with oil prices, which are now between the ECB's 'baseline' and 'milder' scenarios.