ING analysts expect the ECB to pause rate hikes this month but flag a likely September increase amid rising oil prices and hawkish market pricing.
The European Central Bank is expected to keep its deposit rate unchanged at 2.25% at its upcoming meeting, as markets price in minimal near-term tightening. Rising oil prices and well-anchored long-term inflation expectations near the 2% target support a potential September hike, though immediate action appears unlikely without clear data or market signals.
Markets have already priced in around 23 basis points of tightening, with nearly three hikes anticipated over the next year. While the ECB has maintained a hawkish stance, avoiding the term ‘transitory’ inflation, recent data gaps and stretched market positioning limit near-term upside risks to rates.
The 10-year inflation swap has risen to 2.2%, still close to the ECB’s target, but the central bank’s preference for telegraphed moves reduces the likelihood of a surprise hike. Analysts argue that front-loading policy shifts would deviate from the ECB’s historical approach, particularly with no hikes currently priced in.