The European Central Bank intends to raise interest rates despite improving inflation expectations

European Central Bank Governing Council member Peter Casimir said on Monday that the bank will need to raise interest rates at least again this year to curb persistent inflation, noting that the deteriorating economic outlook may require greater monetary tightening than currently expected.
The European Central Bank kept interest rates unchanged last week, but clearly indicated raising them at its next meeting in September, in light of the rise in oil and gas prices this month as a result of the renewed conflict in the Middle East.
“I remain of the view that interest rates must be raised at least once again as part of our measured adjustment to inflation risks,” Casimir, known for his hawkish stances in , said in an opinion piece. “This is justified even if the situation improves somewhat.”
He added that the central bank would need “very convincing” economic data and geopolitical developments in the coming weeks not to call for a move in September.
One of the main reasons the ECB was taking its time this month is that the rise has not yet had any significant price impacts over the period, but Casimir said policymakers must take proactive action.
“These effects often develop quietly,” he added. “When they become very clear, they can be costly to undo. Our job is to act before that stage, not after.”
Financial markets are anticipating at least two additional interest rate hikes by the European Central Bank, with the first hike expected to be fully priced in by October 2026, and the second by March 2027.
“If the situation worsens, and price pressures become stronger and persistent, we will need to tighten monetary policy further over the coming quarters than currently expected,” Casimir added.