ECB Raises Deposit Rate Amid Market Hawkishness and Policy Dilemma

The European Central Bank (ECB) is expected to raise its deposit rate by 25 basis points to 2.50% on September 10, according to a report from ING.

This move has been signaled through media guidance after the bank's July meeting, reflecting its new communication style.

Recent data have reinforced expectations for further tightening, with this week's hike fully priced in and markets anticipating an additional 75 basis points of increases by June 2027.

The ECB faces a policy dilemma: inflation or overtightening. While core inflation edged down to 2.4% in August, growth surprised to the upside. However, bond market instability remains a wildcard, potentially pushing the ECB toward a less hawkish stance.