Economists See Final ECB Hike Next Week in Split With Markets

Economists overwhelmingly believe the European Central Bank will raise interest rates for the last time next week, a far more dovish outcome than markets are betting on, according to a Bloomberg survey published Friday.

The survey found that a large majority of respondents expect the deposit rate to be increased by a quarter‑point to 2.5% on Thursday and then remain at that level through 2027. Traders, by contrast, are pricing in roughly three further hikes by the middle of next year. A separate Reuters poll also pointed to a final move in September.

The divergence highlights the ECB’s challenge in calibrating monetary policy as renewed fighting in the Middle East jolts energy markets. Oil prices are heading back toward US$100 a barrel, while natural gas is surging to levels last seen in 2023. Despite elevated inflation showing no signs of becoming entrenched, risks abound.

“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 could point to evidence that businesses and consumers are bracing for stronger price pressures, and the majority is only mildly concerned about knock‑on effects in areas including wages.

Policymakers largely agree that inflation at a three‑year high has not shifted medium‑ to longer‑term expectations or affected workers’ pay, but that could still change, the survey indicated. ECB Executive Board member Isabel Schnabel told Bloomberg it is “critical” to prevent second‑round effects early, before they demand a more forceful response. Austrian Governing Council member Martin Kocher said it would become “much clearer” in the coming months if such effects have materialised.

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

“The ECB is unlikely to signal any further interest‑rate increases in the coming months,” said Ulrike Kastens, senior economist at DWS International, as reported by 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 take the deposit rate to levels that are more likely to restrict economic activity, the survey found. Even at 2.5%, where it is expected to stay through at least 2027, it would be somewhat above neutral, according to more than three‑quarters of respondents.

The economy has so far proved strong enough to handle tighter monetary conditions. Output increased 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 both growth and inflation is set to be confirmed.

Achieving such an outcome hinges on how the situation in the Middle East evolves. The US 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,” said Dennis Shen, a lecturer at TU Berlin’s International School of Management, as quoted by Bloomberg.