ECB Prepares Second Interest Rate Hike Amid Eurozone Resilience

The European Central Bank (ECB) is expected to raise interest rates by 25 basis points at its next meeting, according to ING. Carsten Brzeski, global head of macro research at ING, says the case for a hike has strengthened since July.

Brzeski notes that the eurozone economy has shown 'an almost unexpected resilience' to the war in the Middle East, partly due to Asian competitors losing orders to European rivals and long-planned fiscal stimulus. Headline inflation has continued climbing and is expected to stay above 3% year-on-year for the rest of the year.

With oil prices elevated and the risk of a fresh gas price shock rising, Brzeski says it would be difficult for most ECB policymakers not to see a case for another hike. However, he notes that after next week's hike, the deposit rate at 2.5% would remain within the range the ECB considers neutral.

Brzeski warns that going further with hikes could suggest the ECB views restrictive policy as necessary, but 'there is a big difference between an economy that has shown resilience and an overheating economy that needs restrictive monetary policy.'