ECB’s Simkus says another rate hike ‘more likely than not’

ECB Officials Signal Further Rate Hikes Despite US-Iran Peace Deal Easing Oil Prices

European Central Bank policymakers on Wednesday signaled that at least one more interest rate increase is on the horizon, even as a preliminary US-Iran peace agreement has driven down oil prices and pushed eurozone bond yields to multi-week lows.

ECB Governing Council member Gediminas Simkus said Wednesday that another rate hike is “certainly more likely than not,” arguing that last week’s quarter-point increase was not enough on its own to contain inflation. “If you were to ask me if that’s enough, if that’s the end of it, I certainly think that this increase would be too small to close the issue of inflation growth,” the Lithuanian central bank governor said, according to Bloomberg. Chief economist Philip Lane said on Tuesday at the Reuters NEXT Europe conference that the bank would continue to be “proactive” in its fight against high inflation even after the deal brought down energy prices.bloomberg

Peace Deal Clouds the Outlook

The ECB raised its deposit rate by 25 basis points to 2.25% on June 11 — its first hike since 2023 — as the Iran war pushed eurozone inflation projections to 3.0% for 2026. Just days later, the US and Iran reached a preliminary agreement to end the conflict and reopen the Strait of Hormuz, sending oil prices sharply lower.bbc

Irish central bank governor Gabriel Makhlouf cautioned on Tuesday that the deal would not instantly resolve inflationary pressures. “An end to the conflict does not necessarily mean an immediate end to the shock,” he said, pointing to damaged energy infrastructure that could delay a recovery in production, according to Reuters.marketscreener

Markets Price In September Move

Eurozone government bond yields extended their decline on Wednesday for a fifth consecutive session, with Germany’s 10-year Bund yield falling to 2.919% — its lowest since early April — as investors scaled back expectations for a second follow-up rate hike. The policy-sensitive two-year yield dropped to 2.56%.investing

Markets are now fully pricing in one additional 25-basis-point increase, most likely in September. JPMorgan economist Greg Fuzesi had noted ahead of the June decision that new staff projections would “lend a distinctly hawkish tone” and that “the communication aligns more with the next expected move in September”. BNP Paribas has also forecast further tightening this year. However, the Iran deal has pared back expectations for anything beyond a September move, with some analysts, including Mohit Kumar at Jefferies, suggesting the ECB’s hiking cycle may already be near its end.wsj