ECB: Nomura Says September Rate Hike Likely, Energy Risks Remain

Nomura's euro area team expects the European Central Bank to raise interest rates by 25 basis points to 2.50% at its September 10 meeting, citing higher HICP inflation and resilient economic growth. This assessment echoes the recent hawkish signals from ECB officials, with market expectations for a September rate hike notably intensifying.

**Inflationary Pressures Persist, Energy Remains a Key Variable**

ECB Executive Board member Isabel Schnabel said Wednesday that, amid ongoing Middle East conflicts and the euro area economy performing stronger than expected, inflation still faces upside risks, and the current policy rate level is insufficient to bring inflation back to the 2% target over the medium term, necessitating further monetary policy tightening. She noted that, due to high energy costs, consumer price gains could remain above 2% for a "considerable period." Nomura analysts said that the longer oil prices stay at current levels, the greater the risk of second-round inflation effects, which constitutes an important basis for a September rate hike.

**Economic Growth Resilience Supports Scope for Hikes**

Schnabel also mentioned that fiscal policy, increased defense spending, and the global AI investment boom are becoming important forces driving economic activity, with euro area aggregate demand likely to remain fairly resilient, thereby reducing the dampening effect of a rapid economic slowdown on inflation. This implies that the ECB, while curbing price increases, has not placed excessive pressure on economic activity, providing room for continued rate hikes.

**Subsequent Path Remains Unclear**

Despite heightened expectations for a September hike, market views remain divided on whether consecutive hikes will follow. According to sources familiar with the matter, ECB policymakers are prepared to raise rates in September, but it is widely believed externally that they are reluctant to tighten policy further beyond that point. Long-term inflation expectations remain anchored near the 2% target, and policymakers see no need to signal further hikes after September. Subsequent rate adjustments will await economic data, particularly the upcoming August inflation figures.