Hike or Hold... ECB Deliberates Over Final Tightening Move

The European Central Bank (ECB) is facing a dilemma over whether to raise interest rates on the 14th. Raising rates risks worsening the eurozone's economic recession, while keeping rates steady raises concerns about persistent inflation.

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According to major foreign media on the 10th (local time), the ECB is keeping various options open at this month's monetary policy meeting, but messages among internal members are conflicting. The ECB has raised interest rates nine consecutive times from July last year to July this year, bringing the rate up to 4.25%, and is set to decide on an additional 0.25 percentage point hike or a hold on the 14th of this month.

Klaas Knot, President of the Dutch Central Bank, pointed out that the market is underestimating the possibility of a rate hike. He stated that with high wage growth continuing, it is "still a long way to go" before inflation slows down to the ECB's target of 2%. Joachim Nagel, President of Germany's Bundesbank, and Pierre Wunsch, President of the Belgian Central Bank, share the same view as President Knot.

Frederic Ducrozet, Chief Macro Strategist at Pictet Asset Management, explained, "If they do not raise rates in September, the opportunity will be lost," adding, "GDP growth is on the verge of contraction, and credit growth is also rapidly slowing."

There are also dovish (monetary easing-preferred) opinions within the ECB. Mario Centeno, President of the Portuguese Central Bank, recently mentioned that as the eurozone economic outlook has worsened over the past few weeks, the risk of 'excessive action' has begun to 'materialize.' Ignazio Visco, Governor of the Bank of Italy, emphasized that "we believe we are close to a level where we can pause rate hikes," noting that indicators showing easing inflationary pressures are being confirmed.

The eurozone's GDP growth rate for the second quarter was 0.1%, falling short of the previously announced preliminary figure of 0.3%. The consumer price index for August rose 5.3% year-on-year, down to half the level of a year ago.

Experts view the ECB's decision on the 14th?whether to raise rates or hold steady?as the most difficult since the tightening began in July last year. Previously, ECB officials had already expressed concerns in July about a slowdown in growth and persistent inflation, indicating the possibility of stagflation (rising prices amid economic recession).

Former ECB Vice President V?tor Const?ncio said that despite the eurozone recession, inflation remains at a high level, and he expects "the hawks to win next week and raise rates." He added, "Stagflation is approaching the euro area," suggesting that there will be no further rate hikes for some time.

This content was produced with the assistance of AI translation services.