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

The European Central Bank is widely expected to raise its deposit rate by 25 basis points to 2.5% on Thursday, but economists and markets are deeply divided on what comes next, according to a Bloomberg survey of analysts.

An overwhelming majority of respondents see the September move as the final hike of the current cycle, projecting that rates will remain at 2.5% through at least 2027. Traders, by contrast, are pricing in approximately three additional increases by mid-next year.

The gap between the economic consensus and market pricing highlights the ECB’s challenge in calibrating policy amid renewed fighting in the Middle East that is jolting energy markets. Oil prices are heading back toward $100 a barrel, and natural gas has surged to levels last seen in 2023.

“The ECB is likely to present a 25 basis-point hike as a necessary step, 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,” Ken Egan, director of Kroll Bond Rating Agency Europe, told Bloomberg.

Almost no survey respondents pointed to evidence that businesses or consumers are bracing for stronger price pressures to come, and the majority expressed only mild concern about knock-on effects in wages. Still, the risk of second-round effects remains a focal point.

ECB Executive Board member Isabel Schnabel told Bloomberg it is “critical” to prevent those effects early, before they demand a more forceful response. Austrian Governing Council member Martin Kocher said in a separate interview that it will become “much clearer” in the coming months whether any such effects have materialized.

Some of their peers are already looking beyond September. Lithuania’s Gediminas Simkus said a hike next week “isn’t going to be enough,” while Bulgaria’s Dimitar Radev referred to both September and December as “live” meetings where borrowing costs could be lifted.

A separate Reuters poll also indicated economists expect a second rate increase in September and then a pause, aligning with the Bloomberg survey.

However, a minority of forecasters see a third hike later this year. J.P. Morgan and BNP Paribas forecast a December ECB rate hike as energy risks linger, according to Investing.com.

“The ECB is unlikely to signal any further interest-rate increases in the coming months,” Ulrike Kastens, senior economist at DWS International, told Bloomberg. “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.”

Another increase would push the deposit rate to levels that are more likely to restrict economic activity. Even at 2.5%, where most economists expect it to stay, the rate would be somewhat above neutral, according to more than three-quarters of survey respondents.

The economy has so far proven resilient. Output grew more than anticipated in the second quarter, and business surveys point to solid momentum ahead. Economists foresee an upward revision to the ECB’s growth projection for 2026, while the medium-term outlook for growth and inflation is expected to be confirmed.

Achieving that benign outcome hinges heavily on developments in the Middle East. The U.S. and Iran are back to fighting over control of the Strait of Hormuz, threatening to extend a war that has already lasted 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,” Dennis Shen, a lecturer at TU Berlin’s International School of Management, told Bloomberg.