ECB Rate Hike: A Dovish Move Ahead of Hawkish Market Pricing

The European Central Bank (ECB) is expected to raise interest rates by 25 basis points on September 10, bringing the rate to 2.50%. This move has already been priced in by markets, which are also anticipating a cumulative 75 basis points of additional hikes by June 2027.

The ECB's decision comes as inflation data shows core inflation edging down to 2.4% in August, while growth has surprised to the upside. However, bond market instability remains a wildcard that could push the ECB towards a less hawkish stance.

ING's macro team notes that any hikes beyond September would move policy from 'insurance' to 'restrictive' territory, which still lacks sufficient support from the data. Markets may also be underestimating concerns about overtightening and its potential spillover into European bond markets.