Economists See Final ECB Hike Next Week as Split With Markets Widens Over Energy Risks

Economists overwhelmingly expect the European Central Bank to deliver what they see as the final rate increase of the current cycle when it meets next week, a stance sharply at odds with market pricing for additional tightening.

According to a Bloomberg survey reported by Businesstimes, the vast majority of respondents predict the deposit rate will be raised by a quarter point to 2.5% on September 10 and remain there through 2027. Traders, by contrast, are betting on roughly three more quarter-point moves by the middle of next year.

The divergence underscores the challenge facing ECB policymakers as renewed conflict in the Middle East jolts energy markets. Oil prices are heading back toward US$100 a barrel, and natural gas has surged to levels last seen in 2023.

### The Consensus View

Economists broadly see next week's increase as a necessary step to anchor inflation expectations, but they anticipate the ECB will stop short of guiding toward further hikes. "The ECB is likely to present a 25 basis-point hike as a necessary step," said Ken Egan, director of Kroll Bond Rating Agency Europe, as quoted by Businesstimes. "But it’ll probably stop short of guiding markets toward another hike, keeping the focus on data dependence, anchored inflation expectations, still-contained wage growth and the need to judge how strongly past tightening is feeding through."

Almost no survey respondents could point to evidence that businesses or consumers are preparing for stronger price pressures, and the majority expressed only mild concern about second-round effects in wages. Yet such risks remain on policymakers’ radar. Executive Board member Isabel Schnabel told Bloomberg, as reported by Businesstimes, that it is “critical” to prevent second-round effects early before they demand a more forceful response.

Austrian Governing Council member Martin Kocher said in a separate Bloomberg interview that it will become "much clearer" in the coming months whether any such effects have materialised.

### Hawkish Dissent

Not all Governing Council members are aligned with the pause narrative. Lithuania’s Gediminas Simkus said a hike next week "isn't going to be enough," according to Businesstimes. Bulgaria’s Dimitar Radev referred to both the September and December meetings as "live" meetings where borrowing costs could be lifted.

Despite such comments, the broader economist survey points to rates staying at 2.5% through at least 2027. More than three-quarters of respondents said that level would be somewhat above neutral, implying mildly restrictive conditions.

### Energy and the Strait of Hormuz

The key variable complicating the outlook is the geopolitical situation in the Middle East. The US and Iran are engaged in renewed fighting over control of the Strait of Hormuz, threatening to extend a conflict already lasting half a year. The waterway "has become the swing factor for the ECB’s future decisions, because a prolonged disruption would turn an energy-price shock into a broader inflation problem," said Dennis Shen, a lecturer at TU Berlin’s International School of Management, as quoted by Businesstimes. "The ECB can look through a temporary energy shock; it cannot afford to look through a persistent one."

The ECB’s own economic projections are likely to be revised upward for growth this year, economists said, while the medium-term outlook for growth and inflation is expected to be confirmed. The economy expanded more than anticipated in the second quarter, and business surveys point to solid momentum.

Ulrike Kastens, senior economist at DWS International, said the ECB is unlikely to signal any further rate increases. "However, we believe that the risks surrounding the next policy move remain skewed to the upside, with a rate hike appearing more likely than a rate cut," she told Businesstimes.

The survey results suggest the ECB is preparing to draw a line under its tightening cycle, but the energy backdrop keeps the door open for further action if geopolitical tensions escalate.