ECB policymakers split on next rate hike as eurozone inflation eases

ECB Governing Council member Ulo Kaasik said Wednesday that one more rate hike is a "reasonable expectation," even as June inflation fell to 2.8%.financialjuice+1
The ECB raised its deposit rate to 2.25% on June 11 — its first hike since 2023 — to counter inflation driven by the Iran conflict's oil shock.ecb.europa+1
Belgium's Pierre Wunsch said "the case for a further hike is receding," while Austria's Martin Kocher said the next move would be "either hike or hold."econostream-media+1

European Central Bank Governing Council member Ulo Kaasik said on Wednesday that at least one more interest rate increase remains a "reasonable expectation," even as fresh data showed eurozone inflation falling more sharply than anticipated in June, complicating the outlook for the bank's next policy decision on July 23.

Kaasik's remarks, delivered at the ECB's annual Forum on Central Banking in Sintra, Portugal, came on a day when a chorus of policymakers weighed in on the path forward following the bank's first rate hike in nearly three years last month.tradingeconomics+1

Inflation Surprise Muddies the Picture

Flash data released by Eurostat on Wednesday showed eurozone consumer price inflation fell to 2.8% in June, down from 3.2% in May and below the 3.0% consensus forecast. The reading marked the first decline since early 2026, offering a reprieve after months of accelerating prices driven by the oil shock stemming from the conflict in Iran.eunews+1

The ECB raised its deposit rate by a quarter point to 2.25% on June 11 — its first hike since September 2023 — in response to inflation that had surged past 3% on the back of soaring energy costs linked to the disruption of oil flows through the Strait of Hormuz. Staff projections at the time forecast headline inflation averaging 3.0% in 2026 and returning to the 2% target only by 2028.ecb.europa+3

Policymakers Split on Timing

The downside inflation surprise has widened a rift among Governing Council members over whether to hike again in July or wait for the September meeting, when the ECB will have updated staff forecasts.

Austria's Martin Kocher said the bank's next decisions would come down to "either hike or hold," citing the risk that higher wages could sustain price pressures. Bundesbank President Joachim Nagel said he was "keeping all options open" for both July and September. Belgian central bank governor Pierre Wunsch told Econostream that "the case for a further hike is receding" as Middle East tensions have eased before meaningful second-round effects emerged.reuters+4

Malta's Alexander Demarco urged caution, telling Reuters the ECB "should not rush into any further rate hike given the unexpectedly quick retreat in oil prices". Slovenia's Primoz Dolenc echoed that view, saying the drop in energy prices had given the bank "breathing space" to wait for fresh projections in September.reuters+1

Lagarde Strikes a Measured Tone

ECB President Christine Lagarde offered a carefully balanced assessment on Wednesday, saying risks to both inflation and growth were "probably more broadly balanced than they were a few weeks ago" and that the ECB would "take necessary steps to contain inflation". She also pushed back against characterizing the June rate increase as a precautionary "insurance hike".bloomberg+2

Financial markets currently price in roughly a one-in-three chance of a rate hike in July, while a move by September or October is more fully reflected in swap pricing.wtvbam+1

Sources (62)