ECB Ready to Raise Rates in September, No Intent to Signal Further Hikes - RTE

According to market sources, European Central Bank policymakers are prepared to raise interest rates at the September monetary policy meeting, but have made clear they have no intention of signaling further policy tightening to markets. This seemingly contradictory policy stance reflects the complex trade-off the ECB currently faces between combating inflation and maintaining economic stability.

**Rate hike aimed at curbing imported inflation risks**

Sources indicate that the core factor driving this rate increase is the eurozone's persistent inflationary pressures and new geopolitical uncertainties. The eurozone inflation rate has reportedly approached 3%, compounded by the economic side effects of the Iran conflict, heightening concerns over upward price pressures. To prevent a repeat of the severe inflation triggered by the energy price surge following the 2022 Russia-Ukraine conflict, policymakers believe it is necessary to raise the key policy rate from 2.25% to 2.50%. This action path has reportedly been incorporated into the assumptions of the ECB's June economic projections.

**No intention to guide sustained tightening expectations**

However, while preparing for a short-term rate hike, policymakers' assessment of the long-term inflation outlook remains relatively stable. Sources note that current long-term inflation expectations remain anchored near the 2% target level. Therefore, policymakers see no need to continue signaling rate hikes after the September meeting. This aligns with institutional survey findings: a previous Reuters survey showed that while 70% of responding economists expect a September rate hike, it is more akin to a "one-off" action in response to specific risks. Although market pricing has at times reflected the possibility of one or two additional rate hikes, the ECB clearly does not want to reinforce this expectation, aiming to avoid excessive tightening that could lead to a sharper-than-expected economic downturn.

**Economic resilience provides room for maneuver**

Policymakers' willingness to raise rates again in a complex environment is partly due to the eurozone economy's recent resilience, which offers a small window for action to curb inflation. However, this does not mean tightening can proceed without limits. Under multiple challenges such as rising borrowing costs and geopolitical conflicts, the economic outlook remains grim. The ECB's strategy of "raising rates in September but offering no commitments" essentially seeks to balance internal inflation fighting with external management of market expectations.