ING expects 25bp ECB hike

ING said on Thursday it expects the European Central Bank to raise interest rates by 25 basis points next week, arguing inflation pressure remains strong enough to justify another move even after July’s pause. The bank said the step would amount to a second increase this year and described it as a credibility-protecting move aimed at limiting indirect or second-round effects from the latest energy shock. The ECB’s next monetary policy meeting is scheduled for September 9-10 in Berlin, with a press conference on September 10. ING also said additional tightening after that would be harder to justify if inflation pressure remains mainly energy-driven. ### Why does ING still think the ECB will move after July’s pause? ING said in a note published on September 3 that the ECB is “gradually shifting” toward a September increase and now expects a 25 basis-point rise next week. The bank pointed to persistent inflation pressure and to signals from the July meeting that some Governing Council members had already argued for a hike before backing a hold. The ECB left rates unchanged in July, but President Christine Lagarde said at the time that some policymakers had favored raising them. The minutes and subsequent commentary helped push markets and analysts toward the view that September remained live, according to ING. ### What is the ECB’s starting point going into the meeting? The ECB last raised its three key interest rates by 25 basis points on June 11, saying then that policy had to ensure inflation returns to its 2% target in the medium term. In its July monetary policy statement, the ECB said financial conditions had become slightly tighter and that the Middle East conflict remained a headwind for activity. ECB staff projections remain central to next week’s decision. The central bank says its macroeconomic projections cover inflation, growth, wages, unemployment and trade, and they feed directly into the Governing Council’s assessment before each policy meeting. ### What did Gabriel Makhlouf say about further hikes? Gabriel Makhlouf, governor of the Central Bank of Ireland and an ECB Governing Council member, said the central bank must be prepared to raise rates further if inflation “starts moving in the wrong direction,” according to an Irish Times report published on September 2. The report said Makhlouf argued that euro zone inflation above 3% combined with still-robust growth made him “uneasy.” The Irish Times said Makhlouf’s comments came as officials weighed whether September should bring another increase after the July hold. His remarks put him among the more hawkish voices ahead of the meeting. ### Why is energy doing so much of the work in this debate? ING said further rate rises beyond next week would make “little sense” if the remaining inflation problem is mainly energy-driven. The bank said a rate increase can still serve as an insurance move to strengthen credibility, but warned that repeated tightening against an energy-led shock risks damaging the euro-area economy. The ECB’s July statement also cited the Middle East conflict as a headwind. That matters because energy shocks can lift headline inflation even when domestic demand is weakening, making the policy trade-off harder for rate-setters. ### What will markets watch on September 10? September 10 is when investors will get both the rate decision and Christine Lagarde’s press conference in Berlin. Markets will watch whether the ECB frames any increase as a one-off response to inflation risks or leaves the door open to further tightening later in 2026. The Governing Council’s meeting begins on September 9 and concludes on September 10, according to the ECB calendar. ING’s call and Makhlouf’s remarks have put the focus on whether the ECB delivers one more 25 basis-point increase and how explicitly Lagarde links any next steps to inflation staying above target. (think.ing.com)