ECB Hikes Interest Rates for Second Time Since Iran War
Speakers
Oliver Crook
— Chief European Correspondent, Bloomberg
Summary
Bloomberg's Oliver Crook reports on the ECB's quarter-point deposit rate hike to 2.5%, its second since the Iran war started. New ECB forecasts show both inflation and growth revised up, creating room for further hikes in December or February. Low European gas storage, elevated gas prices, rising bond yields, and tightening credit conditions are key risks to the policy path.
- ECB raised the deposit rate by 25 basis points to 2.5%, as expected.
- The hike is the second in three meetings since the Iran war started.
- New ECB forecasts revised inflation and growth higher, unlike prior stagflationary projections.
- The central bank may have leeway for another hike in December or February.
- European gas storage is low and gas prices are at their highest since January 2023.
- European bond yields are rising and credit conditions are tightening as the ECB hikes.
Ideas
Low European gas storage supports prices
European gas storage is particularly low right now and European gas prices are up at their highest since January 2023. That makes the energy inflation story a key protagonist for ECB policy and leaves the central bank at the mercy of gas markets.
European bond yields rising as ECB hikes
The ECB's 25-basis-point hike to 2.5% was well priced, but revised-up inflation and growth forecasts give the central bank leeway to raise rates further in December or February. Meanwhile, bond yields are already coming up across Europe and credit conditions are tightening, so the ECB is hiking into a European bond market selloff.
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