The ECB may raise interest rates again in September, Lagarde warns that the situation in the Middle East will increase the risk of inflation

The Zhitong Finance App learned that according to people familiar with the matter, ECB officials are ready to raise interest rates further in September, unless inflation prospects in the Eurozone improve markedly. Based on the information currently available, particularly the Middle East conflict and its economic impact, the ECB believes that it may still be necessary to raise interest rates by 25 basis points to contain continuing inflationary pressure.

However, people familiar with the matter stressed that no final decision has been made. If the situation in the Middle East eases, peace negotiations progress, or the Eurozone economy slows more seriously than expected, the policy path may still change. This position is consistent with the ECB's “decision by meeting” policy framework.

A ECB spokesperson declined to comment on future interest rate policies.

At a press conference in Frankfurt on Thursday, ECB President Lagarde gave a signal about a possible rate hike in September. She revealed that at this meeting, some members of the management committee discussed whether immediate action should be taken, but ultimately decided to keep the deposit mechanism interest rate unchanged at 2.25%.

Lagarde said, “It is true that some members have considered whether interest rates should be raised. However, we think it is appropriate to stay on the sidelines and keep a close eye on developments and upcoming economic data in the coming weeks.”

Last month, the ECB became the first central bank in the Group of Seven to raise interest rates since the outbreak of the Middle East conflict. Currently, it is still at the forefront of dealing with inflationary pressure in major developed economies.

Lagarde reiterated that the risks facing inflation in the Eurozone are still biased upward. She said that the energy shock may further intensify and have a stronger transmission effect on other commodity prices and wages. The longer energy prices remain high, the more likely it is to drive up overall inflation.

Recently, the situation in the Middle East continues to escalate. On Thursday local time, after the Iran-backed Houthis in Yemen claimed to have attacked two Saudi oil tankers, international oil prices rose sharply. The price of Brent crude oil surpassed 100 US dollars per barrel for the first time in two months, further increasing market concerns about rising energy prices and another rise in global inflation.