ECB Holds at 2.25%, Traders Bet on September Hike
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- European Central Bank held its main interest rate at 2.25% on Thursday, matching market expectations
- Christine Lagarde warned that renewed Middle East hostilities and oil price rebounds pose upside risks to eurozone inflation, which she said will remain "well above target" until the first half of 2027
- Eurozone inflation eased to 2.8% last month from 3.2% in May, yet the ECB said it stands ready to adjust all rates to stabilize toward its 2% target
- Ed Hutchings of Aviva Investors said traders now price in a 0.25% hike in September, noting "if sustained further, even tighter policy may well be needed"
- Richard Carter of Quilter Cheviot said the ECB is likely to stay in a "rate raising mood" through year-end, but added that policy depends on developments "away from the continent"
- The June quarter-point hike was the ECB's first rate increase since 2023, prompted by inflationary pressures from the energy shock
Why it matters: Lagarde explicitly tied the ECB's policy path to Middle East-driven energy prices rather than domestic data — meaning eurozone borrowing costs are now hostage to geopolitical events outside Frankfurt's control — and even with inflation already falling from 3.2% to 2.8%, the bank is signaling further tightening rather than patience.
