- Lagarde's comments at the press conference suggest that a September rate hike is almost a done deal.
- Traders are anticipating a rate hike in September as the ECB considers the impact of rising energy prices.
- Current oil prices of close to $100/bbl will make it hard for the ECB not to hike in September.
- Lagarde indicated that unless there are no additional inflationary signs over the next two months, a September rate hike is almost certain.
- Energy price increases have pushed the ECB closer to its more severe macro scenarios, calling for another rate hike.
- Eurozone inflation eased to 2.8% last month from 3.2% in May, but is expected to remain 'well above target' until the first half of 2027.
- Lagarde warned that renewed disruption of energy supplies could increase energy prices further and for longer than expected.
- Inflation expectations remain elevated, and if sustained, even tighter policy may be needed.
European Central Bank President Christine Lagarde's recent press conference highlighted a significant shift towards a hawkish stance, suggesting a September rate hike is likely. Lagarde noted that the risks to inflation are now skewed upwards, while growth risks are tilted downwards.48
She stated, "The longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects," emphasizing the impact of current oil prices nearing $100 per barrel.3
The ECB's decision to maintain its main interest rate at 2.25% was unanimous, yet some members favored a hike during the meeting. Ed Hutchings, head of developed market rates at Aviva Investors, remarked, "Traders now expect a 0.25% hike in September." Lagarde's comments reflect the ECB's readiness to adjust rates to stabilize inflation towards its 2% target, as Eurozone inflation recently eased to 2.8% from 3.2% in May.1267
The ongoing geopolitical tensions in the Middle East have exacerbated energy price volatility, leading to increased inflation expectations. Richard Carter, head of fixed interest research at Quilter Cheviot, noted, "Despite its ability to hold rates today, the market still expects the ECB to be in a rate raising mood for the rest of the year." The ECB's challenge lies in balancing these external pressures while navigating its monetary policy effectively.9
“The ECB left its main interest rate unchanged at 2.25% on Thursday, though Lagarde revealed that some policymakers had favored a rate hike at today's meeting. She also warned that renewed energy supply disruptions could keep inflation 'well above target' until the first half of 2027, making a September hike almost a done deal.”
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