The European Central Bank is set to deliver its final interest rate hike next month, according to a Reuters poll, marking the shortest monetary tightening cycle since 2011.
Economists surveyed by Reuters expect the ECB to increase its deposit rate by 25 basis points to 4.00% at its September policy meeting, bringing a prolonged tightening cycle to an end. The move would cap a series of hikes that began in July 2022, aimed at curbing inflation amid persistent price pressures across the eurozone.
The poll, conducted among 85 economists between Aug. 25 and Aug. 30, reflects growing confidence that inflation is easing toward the ECB’s 2% target, though risks remain tilted toward a slower-than-expected decline. Inflation in the eurozone stood at 5.3% in August, down from a peak of 10.6% in October 2022 but still above the central bank’s goal.
Markets have largely priced in the expected September hike, with futures indicating a 70% probability of a 25 basis point increase. The ECB’s Governing Council has signaled a data-dependent approach, with policymakers emphasizing the need to balance inflation risks against economic growth concerns. Eurozone GDP growth slowed to 0.1% in the second quarter, underscoring the fragility of the recovery.
The ECB’s deposit rate has risen from a low of -0.5% in 2022 to its current level of 3.75%, following 10 consecutive hikes. The central bank has also reduced its balance sheet through quantitative tightening, further tightening financial conditions. The final hike in September would bring the cumulative tightening to 450 basis points over the cycle.
While the poll suggests the ECB is nearing the end of its tightening cycle, economists caution that the path forward remains uncertain. Some respondents noted that a prolonged period of restrictive rates could weigh on economic activity, particularly in highly indebted eurozone countries. Others pointed to upside risks to inflation, including energy price volatility and wage pressures, which could necessitate further tightening.
The ECB’s decision will be closely watched for signals on the future direction of policy, including the potential timing of rate cuts. Investors will scrutinize the central bank’s forward guidance for any hints on whether September’s hike will indeed mark the peak of the tightening cycle.
