European Central Bank Indicates More Interest Rate Increases May Be Needed

Reuters | July 24, 2026 | 10:21 PM IST | Breaking News, Business, Stock Market | Follow on Google News

European Central Bank Indicates More Interest Rate Increases May Be Needed

FRANKFURT, July 24 (Reuters) – The European Central Bank still ​considers the current inflation shock to be medium-sized, which requires ‌some policy action but not aggressive moves, and it will get price growth back to 2% in the next year or so, ECB chief economist Philip Lane said.

The ​ECB left interest rates unchanged on Thursday but offered plenty of hints ​that more policy tightening will be needed and economists and traders ⁠are overwhelmingly betting on a rate hike in September.

“What we’re saying ​is, we will make sure that we will guide inflation back from where ​it is now — 3% — back to 2%, over let’s say the next year or so,” Lane said in a podium discussion in Donegal, Ireland, on Friday.

While Lane did not ​discuss what measures may be coming in September, he said the ECB ​would be closely watching whether surging energy costs generate second-round price or wage impacts, ‌which ⁠could threaten to perpetuate inflation.

The ECB has not seen such effects so far but has argued that the longer energy prices stay high, the more likely it was for second round effects to become evident.

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Lane nevertheless argued that ​the current inflation ​overshoot is still ⁠a moderate shock, which requires a measured response from the central bank.

“It’s not for now the kind of red ​alert level where you have to move quickly as ​we did (in ⁠2022), so it’s a medium-sized shock, and we’re looking every meeting to say exactly what is the right level of interest rates to make sure it ⁠remains ​medium-sized and doesn’t persist, doesn’t become red,” ​Lane said.

Financial markets expect at least two more rate hikes from the ECB, with moves fully ​priced in by October and March.

“What we’re saying ​is, we will make sure that we will guide inflation back from where ​it is now — 3% — back to 2%, over let’s say the next year or so,” Lane said in a podium discussion in Donegal, Ireland, on Friday.

While Lane did not ​discuss what measures may be coming in September, he said the ECB ​would be closely watching whether surging energy costs generate second-round price or wage impacts, ‌which ⁠could threaten to perpetuate inflation.

The ECB has not seen such effects so far but has argued that the longer energy prices stay high, the more likely it was for second round effects to become evident.

Lane nevertheless argued that ​the current inflation ​overshoot is still ⁠a moderate shock, which requires a measured response from the central bank.

“It’s not for now the kind of red ​alert level where you have to move quickly as ​we did (in ⁠2022), so it’s a medium-sized shock, and we’re looking every meeting to say exactly what is the right level of interest rates to make sure it ⁠remains ​medium-sized and doesn’t persist, doesn’t become red,” ​Lane said.

Financial markets expect at least two more rate hikes from the ECB, with moves fully ​priced in by October and March.

Reuters