The European Central Bank's minutes from its July 22-23 policy meeting, released on the 27th, revealed that policymakers saw the need for one more rate hike to curb the inflationary impact of the situation in Iran. They anticipated a possible rate hike as early as September. The ECB kept its policy rate unchanged at the July meeting, but in June it had decided to raise rates for the first time in about three years to prevent energy price increases related to the Iran situation from spreading to the broader economy. The minutes noted that "while decisions remain data-dependent, another rate hike is likely necessary unless the inflation outlook improves significantly." However, they also said that because the inflation outlook could improve, the ECB should not explicitly commit to a September hike in its official communication, and that the pause in rate hikes should not be interpreted as "the end of the tightening cycle." According to sources who spoke to Reuters earlier this week, with euro zone inflation hovering near 3 percent and the economy showing resilience, ECB policymakers are prepared to raise the deposit rate from the current 2.25 percent to 2.50 percent at the September 9-10 meeting. ECB board member Isabel Schnabel said this week that how much further rates need to rise will depend on the data.
ECB minutes signal another rate hike, raising policy rate expectations.
Expected ECB rate hike pushes German bond yields up.
