“While decisions remained data-dependent, another rate hike would likely be necessary unless the inflation outlook improved significantly.” That sentence, from the European Central Bank’s account of its July meeting, was published on Thursday, August 27, and Reuters reported that it left little doubt about where policy was heading.
At the July 22-23 meeting the ECB held rates steady. It had raised them in June for the first time in nearly three years, aiming to stop a war-driven jump in energy prices from settling into the wider economy. The account showed policymakers were already pencilling in another increase, possibly as soon as September.
A pause, not an end
The word “pause” appears twice in the document. Policymakers used it to describe the July hold, and one passage made the intent plain: “It was important not to suggest that the pause in rate hikes at the current meeting meant that the end of the tightening cycle had been reached.”
The ECB also said its public messaging should not yet promise a September move, in case the inflation outlook improved.
Doubts cleared
Earlier in the week, sources told Reuters those doubts were gone. With inflation at nearly 3%, the Iran conflict still unresolved and the euro zone economy holding up, governors were ready to lift the policy rate from 2.25% to 2.50% at the September 9 to 10 meeting.
Isabel Schnabel, a member of the ECB’s board, said in the same week that incoming data would decide how much further borrowing costs have to climb.
The economy is coping
The numbers give the bank room. Recent output figures and business surveys showed the euro zone doing better than expected, which suggested the push against price rises was not squeezing activity too hard. Lending data released on August 27 pointed the same way: banks expanded corporate lending by 4.4% in July, the fastest pace in more than three years.
For households and firms across Europe, the question now is a narrow one. A move to 2.50% would be the second increase of this cycle, and the account gives no sign the governors regard June as the last word.
