Minutes from the European Central Bank’s July meeting, combined with incoming economic data, strengthen the case for a September rate hike, according to a note published Thursday by ING.
Carsten Brzeski, Global Head of Macro at ING, noted that the ECB continues to grapple with a "textbook supply-side shock," though the number of Governing Council members supportive of a September increase appears high. The minutes revealed that some policymakers would not have opposed raising rates in July, emphasizing that delaying action could prove more costly than acting sooner.
The Governing Council judged that moving cautiously was the most prudent approach to preserve flexibility, allowing time to assess how conditions evolved over the summer. However, recent data has surpassed expectations, with downside risks to growth viewed as less pronounced while inflation risks remain skewed to the upside.
Policymakers observed no evidence of second-round effects from higher energy prices embedding into wage and price dynamics, and longer-term inflation expectations remained anchored. The eurozone has also demonstrated "almost unexpected resilience" to geopolitical tensions, including the Middle East conflict, partly due to Asian competitors bearing the brunt of disruptions such as the closure of the Strait of Hormuz.
ING questioned whether the ECB would extend tightening beyond September, noting that the central bank may avoid actions that risk tipping the economy into recession over a supply-side shock.
