The European Central Bank (ECB) maintained interest rates at 2.25% last Thursday, considering that the inflationary threat from geopolitical tensions is currently contained. However, the institution's president, Christine Lagarde, noted that the effects of the energy shock stemming from the conflict in the Middle East "have not yet fully materialized," suggesting caution regarding future decisions.
In her appearance, Lagarde stated that the ECB remains "particularly attentive" to the second-round effects of inflation, a phenomenon where rising prices spread through the economy, leading to wage increases that in turn impact prices again. The removal of the reference to "more balanced" risks for inflation and growth from her speech was also interpreted by analysts as a signal of monetary policy tightening.
Financial experts and analysts interpret Lagarde's statements as a clear hint towards a possible rate hike in September. They point out that the ECB will receive a flood of new economic data, including CPI, GDP, PMI projections, and wage expectations, before its next meeting. The recent escalation of the conflict between Washington and Tehran reinforces this forecast.
Economists such as Karsten Junius from J. Safra Sarasin Sustainable AM believe the ECB has "wide open" the doors to a September hike, recalling that inflation is expected to remain well above the 2% target until the first half of 2027. Felix Feather from Aberdeen Investments sees the situation as more dependent on the course of the conflict in the Strait of Hormuz, but bets on a hike if the energy crisis persists. Tina Fong from Schroders, while not surprised by the pause, warns that June's inflation data, though welcome, is insufficient to declare victory, and expects a 0.25% increase.
