ECB's Dolenc Backs Rate Hike in September to Safeguard Inflation Target

European Central Bank (ECB) Governing Council member Primoz Dolenc thinks it's time for a rate hike in September. He believes this move will help safeguard the ECB's inflation target, which is currently being threatened by stronger-than-expected economic growth and elevated energy costs.

Dolenc, the Slovenian central-bank governor, made his comments at the Federal Reserve's annual economic symposium in Jackson Hole. He noted that while the latest developments around the Iran war haven't shown a significant improvement, the inflation situation doesn't resolve itself and more action is needed to get price gains back on track.

The ECB is currently debating whether to add to the quarter-point hike in borrowing costs enacted in June in response to the Iran war. Investors are leaning toward further tightening, with some expecting rates to reach 2.5% next month. Dolenc indicated that if another hike is decided on next month, the last meeting of the year would be a good moment to reassess the situation and make any necessary adjustments.

When asked about the definition of the neutral rate, Dolenc warned against focusing too much on this threshold. He argued that defining the neutral rate is 'not an exact science' and policymakers should instead focus on anchoring inflation expectations at the ECB's target.