Europe | Hawkish pause sets the stage for a September hike

Summary

The ECB kept the deposit rate unchanged at 2.25% following a unanimous decision. Lagarde adopted a hawkish tone, stressing that the energy shock has yet to fully feed through the economy. With more data available by September, the next move will depend on whether energy and geopolitical pressures persist over the summer.

Key points

• Key points:
• The ECB paused unanimously, although several members saw a case for another hike, putting a possible September move firmly on the agenda.
• Lagarde struck a more hawkish tone, dropping the “more balanced” assessment used at Sintra and warning that the energy shock has yet to fully feed through the economy.
• Softer recent inflation and no second-round effects gave the ECB room to wait, but renewed Middle East tensions have increased our bias towards a September hike.

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