ECB Decision – 27/07: Pressure Eases on Aggressive Rate Hikes Amidst Deflationary Concerns

ECB decision – 27/07 

If the Fed is close to the end of its rate hiking cycle which appears to be looking increasingly likely then the pressure for the ECB to be more aggressive in its own battle against inflation could recede. We've already seen the euro rise sharply against the US dollar which is in itself deflationary and will help.

Furthermore, factory gate prices in German and Italy have been in freefall for months now, so while core CPI has remained sticky and close to record highs, it's also important to remember that the ECB has pushed rates from 2% to 4% this year already.

We expect to see another 25bps this week, however the consensus that was so prevalent at the start of this year of more aggressive rate hikes is already starting to fray on the governing council, with the Stournaras of the Bank of Greece pushing back strongly against the idea of more aggressive action.

He hasn't been the only one however, and we've also started to see more vocal political opposition to further tightening from Italian Prime Minister Giorgia Meloni who has been publicly critical of the ECB when it comes to recent rate hikes.