Key facts
- The ECB raised its benchmark deposit rate to 2.50%.
- Policymakers anticipate further tightening, with a potential October rate hike contingent on data and geopolitical developments.
- European shares fell to a two-month low following the ECB's rate hike and inflation warnings.
- Barclays, Goldman Sachs, and Citigroup predict further ECB tightening due to persistent inflation and rising energy prices.
- ECB policymaker Gabriel Makhlouf warned that raising interest rates significantly could harm economic growth.
- ECB President Christine Lagarde rejected a French debt cancellation plan.
The European Central Bank may need to raise interest rates further into restrictive territory if energy prices continue to climb, policymaker Joachim Nagel said. The ECB raised its key rate to 2.50% on Thursday and expects inflation to remain above 2% through 2028.
Nagel stated that the ECB's key rate, now at 2.50%, is at the upper end of a neutral range but may still need to go further, depending on how energy prices and the overall price picture evolve over the next month. Policymakers anticipate further tightening, with a potential rate hike in October contingent on incoming data and geopolitical developments.
European shares fell to a two-month low following the ECB's rate hike and inflation warnings. Bond yields surged to multi-year highs as traders anticipate further ECB rate hikes amid rising energy costs. Barclays and Goldman Sachs predict a December rate hike by the ECB, citing persistent inflation and rising energy prices. Citigroup also expects further tightening.
ECB President Christine Lagarde rejected a French debt cancellation plan as financially dangerous and legally impossible. The central bank also increased its 2027 inflation forecast to 2.5% from 2.3% and core inflation to 2.6%, while raising its 2026 GDP growth projection to 0.9%. The ECB acknowledged a highly uncertain economic outlook with upside inflation risks and downside growth risks. Policymaker Gabriel Makhlouf noted that while a prolonged Middle East conflict risks keeping inflation elevated, raising rates significantly could harm economic growth.