TLDR
- The ECB held rates steady at its July meeting but called it a “pause,” not the end of rate hikes
- Policymakers said another rate increase would likely be needed unless inflation improved
- Sources say ECB governors are ready to raise the policy rate to 2.50% from 2.25% in September
- Inflation in the euro zone is running at nearly 3%, driven partly by the ongoing Iran conflict
- Corporate lending in the euro zone grew at its fastest pace in over three years in July
The European Central Bank paused its rate hike cycle in July but made clear it was not finished raising borrowing costs. Meeting minutes released Thursday show policymakers were already planning for another increase, possibly as soon as September.
ECB SET FOR SEPTEMBER RATE HIKE
ECB policymakers are prepared to raise rates by 25 basis points to 2.50% in September, Reuters reports, as the Iran war keeps energy prices and inflation elevated.
Euro-zone inflation is near 3%, while economic activity remains resilient.…
— *Walter Bloomberg (@DeItaone) August 25, 2026
The ECB kept its policy rate steady at its July 22-23 meeting. That came after it raised rates in June for the first time in nearly three years. The June hike was aimed at stopping war-driven energy price increases from becoming a lasting inflation problem.
Another Hike Was Already on the Table
The meeting account shows policymakers discussed the need for further tightening. “While decisions remained data-dependent, another rate hike would likely be necessary unless the inflation outlook improved,” the ECB said in its official account.
Policymakers used the word “pause” twice in the July meeting account to describe their decision to hold rates. They were careful not to signal that rate hikes were finished.
“It was important not to suggest that the pause in rate hikes at the current meeting meant that the end of the tightening cycle had been reached,” the ECB said.
The central bank did say it would not formally commit to a September hike in case the inflation picture changed. But that caution appears to have faded since then.
September Hike Looks Likely
Reuters reported earlier this week that ECB governors are now ready to raise the policy rate again. The expected move would take the rate to 2.50% from 2.25% at the September 9-10 meeting.
Three factors are driving that decision. Inflation is running at close to 3%. The Iran conflict is still ongoing and keeping energy prices elevated. And the euro zone economy is holding up better than many expected.
ECB board member Isabel Schnabel said earlier this week that incoming data will determine how much further rates need to rise. She did not rule out more hikes beyond September.
The euro zone economy has shown more strength than forecast. Business surveys and output data came in better than expected, suggesting the rate hikes so far have not hurt economic activity too much.
Corporate lending also picked up. Banks grew their business loans at 4.4% in July, the fastest pace in more than three years. That points to continued economic activity despite higher borrowing costs.
The ECB first raised rates in June after nearly three years of holding them steady. That move was a direct response to the energy price shock caused by the Iran war. September’s expected hike would be the second increase in that new tightening cycle.
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