ECB Prepares to Hike Interest Rates Again Amid Resilient Eurozone Economy

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, believes the case for a hike has strengthened since July, when some ECB members advocated for one.

The eurozone economy has shown 'an almost unexpected resilience' to the war in the Middle East, partly aided by Asian competitors losing orders to European rivals following the closure of the Strait of Hormuz. Long-planned fiscal stimulus has also contributed to this resilience, Brzeski said.

Headline inflation has continued climbing and is expected to stay above 3% year-on-year for the rest of the year, with core and services inflation providing 'no reason to panic'. However, elevated oil prices and the risk of a fresh shock rising make it difficult for most ECB policymakers not to see a case for another hike.

Brzeski noted that after next week's hike, the deposit rate at 2.5% would remain within the range the ECB considers neutral. He questioned whether the ECB would be willing to add more fuel to the fire by further tightening policy, given public finance woes and surging bond yields.