ECB Poised for Another Rate Hike Amid Inflation Concerns

The European Central Bank (ECB) is set to hike interest rates by 25 basis points next week, according to ING's analysis. The ECB has shown an unexpected resilience to the war in the Middle East, partly due to good luck and Asian competitors being hit harder by the closure of the Strait of Hormuz.

Headline inflation remains above 3% year-on-year, with oil prices remaining elevated and the risk of a fresh gas price shock increasing. The ECB's growth and inflation forecasts are expected to be revised upwards slightly, mainly due to earlier statistical upward revisions of first-quarter growth and slightly higher oil prices.

The ECB's decision to hike rates again is seen as an 'insurance rate hike', aiming to strengthen its credibility and preempt any possible indirect or even second-round effects from the current energy price shock. However, going further beyond a September rate hike may not be likely, given the eurozone economy's resilience and the risk of recession.