European Central Bank: Rates on hold but tightening bias – Nordea

Nordea’s Jan von Gerich expects the European Central Bank to leave policy rates unchanged at the July meeting, describing it as a pause rather than a shift in stance. Lower-than-expected June inflation and volatile Middle East developments reduce urgency for an immediate move. However, Nordea still anticipates a 25bp hike in September and sees further tightening likely thereafter.

Pause, not peace

"The Governing Council meeting concluding on 23 July is expected to leave rates unchanged, though given the renewed escalation of the war in the Middle East, another 25bp hike cannot be fully excluded."

"As no new staff forecasts will be available at this meeting, the focus will be on any signals about the next steps."

"Recent Governing Council comments suggest a hike is not seriously considered at this point, but a clear bias towards further tightening remains."

"Financial markets assign only limited odds of a move next week, while another 25bp hike is priced in with a probability of more than 90% by the September meeting."

"We no longer expect a hike next week, but instead now see the next 25bp hike in September, which is unlikely to be the last move in this cycle, though uncertainty about the outlook remains high, not least due to the situation in the Middle East."