Commerzbank economists, led by Dr. Marco Wagner and Dr. Jörg Krämer, anticipate that the European Central Bank (ECB) will keep interest rates unchanged at its July meeting but are forecasting a further 25 basis point hike in September [1]. The economists cite their ChatECB AI indicator, which remains in hawkish territory, as well as ongoing upward trends in core inflation and inflation expectations as key factors influencing the ECB's tightening bias [1].
According to Commerzbank, the ECB Governing Council members are leaning toward higher interest rates, especially since core inflation is expected to rise in the coming months and households’ inflation expectations have increased [1]. Despite a downward trend in energy prices, the euro area inflation rate is projected to remain just below 3% in the coming months, with core inflation trending upward [1]. The economists warn that indirect effects from higher energy costs and elevated inflation expectations could make higher inflation more persistent, justifying another rate hike to send a clear signal to consumers [1].
Commerzbank notes that the ECB's deposit rate, currently at 2.50%, is still within the range of the neutral rate and likely not yet restrictive, referencing Chief Economist Lane's recent statement placing the upper limit of the neutral rate at 2.5% [1]. Most ECB Governing Council members also estimate the neutral rate to be between 2% and 2.5% [1]. The ChatECB Index, at 0.37, remains at a level historically associated with rate hikes by ECB policymakers [1].
The economists expect the September meeting to be pivotal, as ECB officials will present new projections and continue to monitor the situation closely—a stance that typically signals a tendency toward further monetary tightening [1].
CONCLUSION
Commerzbank expects the ECB to pause in July but deliver a 25 basis point rate hike in September, driven by persistent core inflation and rising inflation expectations. The current deposit rate is seen as not yet restrictive, supporting the case for further tightening. Market participants should prepare for continued hawkish signals from the ECB in the coming months.