ECB Holds at 2.25% as September Hike Gets Priced In
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- ECB held its main interest rate at 2.25% on Thursday, a decision that fell broadly in line with market expectations
- Christine Lagarde warned that renewed Middle East hostilities and the rebound in oil prices pose upside risk to eurozone inflation, which the ECB expects to remain 'well above target' until the first half of 2027
- Ed Hutchings of Aviva Investors said traders now price in a 0.25% rate hike at the ECB's September meeting as inflation expectations stay elevated
- Eurozone inflation eased to 2.8% last month from 3.2% in May, though Lagarde cautioned that energy supply disruption could push prices higher 'for longer than expected'
- The ECB's June quarter-point hike was its first rate rise since 2023, triggered by inflationary pressures from the Iran war energy shock
- Richard Carter of Quilter Cheviot noted the market expects the ECB to remain in a rate-raising mood for the rest of the year, with policy now hostage to developments 'away from the continent'
Why it matters: Eurozone borrowers face tighter policy as traders price in a 0.25% September rate hike following the ECB's first quarter-point rise since 2023. With Lagarde tying the inflation outlook directly to Middle East hostilities and oil prices, the ECB's next moves now hinge on geopolitical developments beyond its control.
