The European Central Bank (ECB) is expected to keep policy rates unchanged at its July meeting, according to Nordea’s Jan von Gerich, who describes the decision as a pause rather than a shift in monetary policy stance [1]. This comes in the context of lower-than-expected June inflation and ongoing volatility in the Middle East, both of which have reduced the urgency for an immediate rate move [1].
Despite the anticipated pause, Nordea projects a 25 basis points (bp) rate hike in September, with the possibility of further tightening thereafter [1]. The Governing Council meeting concluding on 23 July is expected to leave rates unchanged, although the renewed escalation of the war in the Middle East means that another 25bp hike cannot be fully excluded [1].
No new staff forecasts will be released at this meeting, so market participants are expected to focus on any signals regarding the ECB’s next steps [1]. Recent comments from the Governing Council indicate that a rate hike is not seriously considered at this point, but a clear bias towards further tightening remains [1]. Financial markets currently 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 [1].
Nordea no longer expects a hike next week, but sees the next 25bp hike in September, which is unlikely to be the last move in this cycle. However, uncertainty about the outlook remains high, particularly due to the situation in the Middle East [1].
CONCLUSION
The ECB is set to keep rates unchanged in July, but maintains a clear tightening bias with a 25bp hike expected in September. Market participants are closely watching for signals on future policy moves, as uncertainty remains elevated due to geopolitical developments and inflation trends.