Economists: The European Central Bank will raise interest rates by 25 basis points next week and will then halt its tightening actions.

Economists expect that the European Central Bank (ECB) will conduct the second and final interest rate hike of this tightening cycle on September 10, after which it will cease its actions. Surveys show that the vast majority of economists anticipate that the ECB will raise the deposit facility rate by 25 basis points to 2.5% next Thursday, and maintain this rate until 2027. In contrast to current interest rate futures betting on approximately three additional rate hikes before the middle of next year, economists' expectations are much more dovish. Economists Expect One More Rate Hike from the ECB If the ECB follows economists' expectations and stops tightening after the rate hike in September, this tightening cycle will only consist of two hikes, making it the shortest since 2011. This scenario is quite similar to the experience in 2011, when the ECB also raised rates twice in succession against the backdrop of soaring oil prices, which many policymakers later viewed as a policy misstep. Today, with inflation again driven by energy prices, halting tightening after the September hike would indicate that the ECB's response to supply-side shocks will be significantly more restrained, avoiding excessive policy tightening and reducing the risk of an economic hard landing, which may become a more important policy consideration. Currently, a 25 basis point rate increase by the ECB next week has essentially become a market consensus. Sustained rising overall inflation, along with widespread market expectations that it will remain above 3% within the year, makes it difficult for most policymakers to publicly oppose another rate hike. Meanwhile, renewed escalation of conflict in the Middle East is impacting energy markets once againinternational oil prices are edging toward $100 per barrel, and natural gas prices have soared to levels not seen since 2023. Although high inflation has not yet shown signs of being entrenched, risks abound. At the same time, the Eurozone economy has recently shown unexpected resilience. On the one hand, some Asian competitors are facing greater shocks due to the blockade of the Strait of Hormuz, with orders and supply chains partially shifting to Europe. On the other hand, fiscal stimulus policies in multiple countries continue to support growth momentum. Thus, the ECB's interest rate hike next week is widely seen as an "insurance rate hike"its core purpose is to further strengthen the central bank's anti-inflation credibility and effectively prevent the impacts of energy price shocks from translating into indirect or second-round effects through wage negotiations and pricing behaviors. Ken Egan, director at Kroll Bond Rating Agency Europe, stated: "The ECB is likely to characterize the 25 basis point rate hike as a necessary step. However, it is unlikely to further signal to the market about another rate hike, but rather continue to emphasize data dependence, that inflation expectations remain anchored, that wage growth is still under control, and that it is necessary to assess the extent to which previous tightening policies have transmitted to the economy." Data shows that the Eurozone's inflation rate rose to 3.3% in August, further above the ECB's 2% target, providing a rationale for the September rate hike. However, surveys show that most economists believe that the rise in energy prices will not temporarily evolve into broader inflationary pressures, which is also an important basis for the market's bets on a halt to rate hikes after September. Almost no surveyed economists could point to evidence suggesting that businesses and consumers are preparing for stronger price pressures in the future, and most have only mild concerns about potential knock-on effects in areas including wages. Despite general agreement among ECB policymakers that inflation at a three-year high has not changed medium- to long-term inflation expectations and has not impacted wage levels for workers, this situation may still change. Isabel Schnabel, a member of the ECB Executive Board, stated that it is "crucial" to prevent second-round effects from requiring more robust countermeasures. ECB Governing Council member Martin Koehler remarked that it would be "clearer in the coming months" whether any such second-round effects have emerged. Some ECB policymakers have begun to consider this issue in advance. Gediminas imkus stated that a single rate hike next week "will not be enough." Dimitar Radev referred to both the September and December meetings as opportunities where "further action is still possible," at which point borrowing costs could rise further. Ulrike Kastens, senior economist at DWS International, stated: "The ECB is unlikely to suggest further rate hikes in the coming months. However, we believe that the risk of the next policy action still skews upward, and a rate hike appears more likely than a cut." Another rate hike would bring the deposit rate to a level more likely to restrict economic activity. More than three-quarters of surveyed participants believe that even with a rate of 2.5%, it would still be slightly above the neutral rate level. So far, the European economy has demonstrated sufficient strength to withstand a tighter monetary environment. Economic output growth in the second quarter exceeded expectations, and business surveys indicate that future growth momentum remains robust. ECB Likely to Confirm Medium-Term Economic Outlook Additionally, economists expect the ECB to raise its economic growth forecasts for 2026 while confirming its medium-term economic outlook and inflation prospects. Whether this vision can be realized depends on how the situation in the Middle East develops. The renewed conflict between the U.S. and Iran over control of the Strait of Hormuz could extend a war that has already lasted for six months. Dennis Shen, a lecturer at the International Management School of Technical University of Berlin, stated that this waterway "has become a key variable affecting the ECB's future decisions because if the disruption lasts too long, the impact of energy prices will evolve into a broader inflation issue." He added, "The ECB can overlook a temporary energy shock, but it cannot afford to turn a blind eye to a prolonged energy shock."