September ECB rate hike: Is the case getting stronger?

Investing.com -- In a note Thursday, ING said minutes from the European Central Bank's July meeting, combined with recent economic data, strengthen the case for a rate increase next month.

"The ECB is still struggling with how to react to a textbook supply-side shock. However, the number of ECB members supportive of a September rate hike seems to be high," wrote Carsten Brzeski, global head of macro.

Brzeski noted that the minutes showed some policymakers would not have opposed raising rates in July, stressing the low likelihood of a scenario in which further tightening would not be warranted and noting evidence that acting earlier can prove less costly.

The Governing Council ultimately judged that moving slowly was the most prudent course, preserving the option value of waiting to see how conditions evolved over the summer.

ING highlighted that incoming information had been better than expected, with downside risks to growth judged less pronounced, though risks to inflation remained to the upside.

Members also found no evidence that second-round effects from higher energy prices had become embedded in wage and price dynamics, while longer-term inflation expectations stayed anchored.

Since July, the bank said the eurozone has shown almost unexpected resilience to the Middle East conflict, partly because Asian competitors were hit harder by the closure of the Strait of Hormuz.

Whether the ECB goes beyond September is another matter, ING said, questioning whether it would risk a recession over a supply-side shock.

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