Reuters poll: ECB may see "final rate hike" on September 10! Deposit rate rises to 2.50%, this tightening cycle may have peaked.

The European Central Bank's current rate hike cycle may be nearing its end. A Reuters survey shows that the vast majority of economists expect the ECB to raise rates by another 25 basis points on September 10, after which it will stop. If this expectation materializes, this tightening cycle will consist of only two rate hikes, making it the shortest cycle since 2011.

According to a survey conducted from August 31 to September 3, all 65 economists surveyed expect the European Central Bank to raise its deposit rate to 2.50%. Of these, approximately 91% expect the rate to remain at 2.50% until the end of the year, and 78% believe this level will continue until at least the middle of next year.

Despite escalating tensions in the Middle East and a significant rise in global bond yields over the past week, economists generally believe that the European Central Bank is unlikely to further tighten policy in the face of a struggling Eurozone economy . While current inflation remains above the 2% target, markets and policymakers are increasingly inclined to view it as a temporary shock resulting from rising energy prices.

The survey unanimously expects a rate hike in September, but economists and the market remain divided on the subsequent path.

The survey showed a clear consensus on the expectation of a September rate hike.

Before the July policy meeting, only 72% of respondents expected a rate hike in September; this rose to 83% in August, and reached 100% in this survey. However, economists and the interest rate futures market still disagree on the subsequent path. Current interest rate futures have already priced in the third rate hike, while the surveyed economists generally expect rates to remain unchanged after the September hike.

Carsten Brzeski, Global Head of Macro at ING, believes that with public finances under pressure and bond yields rising rapidly, the European Central Bank (ECB) is unlikely to choose to further tighten monetary policy. He stated that in the face of a typical supply-side shock, continued interest rate hikes by the ECB could actually increase the risk of an economic recession.

Inflation is rising again, but energy factors are dominating.

Eurozone inflation rose to 3.3% in August, further exceeding the European Central Bank's 2% target, providing justification for a September rate hike. However, surveys show that most economists believe rising energy prices will not immediately translate into broader inflationary pressures, a key factor supporting market bets on a halt to rate hikes after September.

SEB Eurozone economist Pia Fromlet said that inflation is expected to gradually fall back to target next year, but upside risks have increased significantly.

This survey revised its full-year inflation forecast for 2026 upward to 2.9%, the largest upward revision since 2022 ; the inflation forecasts for this quarter and next quarter were also revised upward to 3.2% and 3.3%, respectively, from 3.0% and 3.2%. Core inflation is expected to remain sticky in the coming quarters, and the return of inflation to the 2% target may be delayed until the end of 2027.

Two interest rate hikes later in the cycle, it may mark the shortest tightening period in 15 years.

If the ECB stops its tightening efforts after raising rates in September, this round of tightening will consist of only two rate hikes, making it the shortest round since 2011.

This scenario is quite similar to what happened in 2011. At that time, the European Central Bank also raised interest rates twice in a row amid soaring oil prices, and this round of tightening was subsequently regarded by many policymakers as a policy mistake.

This round of interest rate hikes began in 2022. Faced with record inflation triggered by factors such as the Russia-Ukraine conflict, the European Central Bank subsequently launched its most aggressive tightening action in decades. Now, with inflation once again driven by energy prices, if the rate hikes cease in September, it would mean that the European Central Bank's response to supply-side shocks will be significantly more restrained. Avoiding excessive tightening and reducing the risk of a hard landing for the economy may become more important policy considerations.

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