FRANKFURT, September 3 — The European Central Bank is poised to resume its interest rate tightening campaign as soon as next week, with policymakers concluding that another hike is likely necessary to prevent war-driven inflation from taking root across the euro zone. The ECB on August 27 published the account of its July 22-23 monetary policy meeting, revealing that governors had weighed a further increase during that session but ultimately held the policy rate at 2.25%. The decision was framed internally as a “pause” rather than an endpoint.
The account described the July hold as a deliberate interruption, used twice in the document to stress that the tightening cycle remained alive.
September hike on the table
The published account carried conditional language. “While decisions remained data-dependent, another rate hike would likely be necessary unless the inflation outlook improved significantly,” it stated. Official communication was deliberately kept open, the account noted, to avoid locking the bank into a September move should conditions shift.
Yet conditions appear to have hardened rather than softened. Sources familiar with the ECB’s thinking told Reuters earlier the same week that remaining doubts among governors had been cleared.
Inflation is running at nearly 3%, the Iran conflict continues to pressure energy markets, and the euro zone economy has proven more resilient than feared. Those sources indicated the policy rate would rise from 2.25% to 2.50% at the September 9-10 meeting. ECB board member Isabel Schnabel reinforced the data-dependent posture in public remarks earlier that week.
How much further borrowing costs must climb, she said, would be determined by incoming economic figures.
Economy withstands pressure
Recent output data and business surveys suggest the ECB’s June hike — the first in nearly three years — has not choked off activity. The euro zone economy is performing better than expected, giving policymakers confidence that their inflation fight is not exacting an unacceptable toll on growth. Bank lending data released alongside the meeting account on August 27 pointed in the same direction.
Corporate lending expanded at the fastest pace in more than three years, climbing 4.4% in July. That acceleration signals that credit conditions remain supportive enough for businesses to keep investing and hiring even as rates edge higher.
The June increase had been designed specifically to stop energy price spikes driven by the Iran war from becoming entrenched in broader price-setting behavior. With the conflict ongoing and inflation still above target, the ECB appears ready to follow through on its warning that July was only a pause.
What to watch
All eyes now turn to the September 9-10 governing council meeting in Frankfurt. A rate increase to 2.50% would mark the second move in this tightening cycle and set the stage for further decisions into the autumn. Markets and households across Europe will be watching whether Schnabel’s data-dependent framework produces additional hikes, or whether the bank judges that two increases have done enough to anchor expectations.
