ECB set to raise rates again on 10 September

The European Central Bank will almost certainly deliver a second interest-rate hike in the coming week^2,3. Its Governing Council meets to discuss the next rate-setting move with pressure rising for increases⁴.

The bank is widely expected to raise its deposit rate by 25 basis points, from 2.25 per cent to 2.50 per cent, at the meeting⁵. Irish reporting calls it a dead certainty that the ECB will lift its key rate next week to 2.50 per cent, back where rates were before⁶. Cypriot coverage puts the step at 0.25 percentage points on 10 September⁹. Sada News describes a second rise inside the week as almost certain, driven by inflation¹⁰.

Part of a wider turn

Inflation is back around the world, and so is the fight against it¹. The Bank of Japan raised rates in June and the Bank of Korea in July and August, and the ECB is expected to follow on the tenth¹.

The Star describes the ECB as doubling down as the hawk of the Group of Seven². In London, the argument is that the Bank of England cannot afford not to raise rates, with the ECB expected to move this week and Kevin Warsh, the new chairman of the Federal Reserve, having signalled his own direction⁷. For investors, that removes the assumption that at least one large central bank will keep bidding for duration.

Markets are already adjusting. Australian equities were set for a jittery start to the week with the ECB tipped for another increase³.

What it costs borrowers

The cumulative effect on households is the part that has already landed. In Cyprus, a decade of rate changes has added 320 euros a month to mortgage repayments, with a further quarter-point increase expected on 10 September⁹.

Irish commentary is now aimed squarely at savers and borrowers asking what to do as rates rise, ahead of two days of meetings⁸. The practical questions are the same across the currency bloc: whether to fix, whether to overpay, and how much further the deposit rate has to travel.

One personnel question sits alongside the policy one. Speculation is mounting that Christine Lagarde is preparing to jump ship at the ECB⁶. A leadership change during a tightening cycle would add a second layer of uncertainty for euro-denominated bonds, on top of the rate path itself⁴.