European Central Bank: September hike prospects stay firm – Nordea

Nordea’s Jan von Gerich argues that the European Central Bank (ECB) is likely to continue tightening policy, with the outlook heavily dependent on Middle East developments and energy prices. He notes that a July move is now unlikely after lower inflation and falling Oil, but sees a September rate hike as probable, in line with current market pricing.

ECB path tied to energy risks

"The ECB outlook still hinges to a large extent on the developments in the Middle East and in energy prices."

"While a July hike is likely to be off the table without a significant jump in energy prices, a September rate move looks much more likely."

"However, the account supported the view that even a quick end to the conflict would not automatically mean that the ECB would be done hiking rates."

"The major fall seen in energy prices on the back of hopes of a peace in the Middle East and lower-than-expected inflation numbers for June have given the ECB more time to monitor the situation, and the July hike we have had in our baseline forecasts does not look particularly likely anymore."

"However, the recent spike higher in the crude oil price on the back of renewed hostilities in the Middle East is a fresh reminder of the remaining uncertainties, and we do not think the ECB is done hiking, with also several Governing Council members recently commenting that upside price risks remain."