The European Central Bank may face growing pressure to raise interest rates in September after the release of its July meeting minutes and recent economic data pointed to reduced growth risks and persistent inflation pressures.
A note from ING published on Thursday highlighted that the minutes from the ECB’s July meeting, alongside incoming data, strengthen the case for a rate hike next month. While the Governing Council ultimately opted for a gradual approach in July—preserving flexibility to assess conditions over the summer—some officials had signaled openness to an earlier increase, according to ING’s Global Head of Macroeconomics, Carsten Brzeski.
Brzezki noted that acting sooner could prove less costly, while the probability of maintaining the current policy without further tightening remains low. The minutes revealed that certain members did not oppose a rate hike in July, though the majority favored a cautious stance to monitor evolving economic dynamics.
Recent eurozone data has exceeded expectations, with downside risks to growth appearing less pronounced. Inflation risks, however, continue to tilt upward, though authorities have not observed evidence of second-round effects from higher energy prices embedding into wage and price growth. Long-term inflation expectations remain anchored, the ECB noted.
Since July, the eurozone has shown resilience to geopolitical disruptions, including the Middle East conflict, partly due to weaker-than-expected impacts from the Strait of Hormuz closure, which has weighed more heavily on Asian competitors. ING raised the question of whether the ECB would extend tightening beyond September and whether such a move could risk triggering a recession in response to a supply-side shock.
