ECB Urged to Stay Cautious on Further Rate Hikes

The European Central Bank should remain alert to rising inflation risks but avoid rushing into another interest-rate increase, Bank of Greece Governor Yannis Stournaras said.

Stournaras said it was encouraging that higher inflation had not yet generated significant wage-related pressure, but warned that this could change. He highlighted repeated supply shocks, strong demand linked to fiscal expansion and rising investment in artificial intelligence as reasons for continued vigilance.

Inflation Remains Above the ECB Target

Eurozone inflation remains above 3%, exceeding the ECB’s 2% target and keeping pressure on policymakers.

The ECB has already raised borrowing costs twice since the outbreak of the war with Iran. Policymakers are now assessing whether additional tightening is necessary as inflation risks remain elevated.

Stournaras said another rate increase in October cannot be ruled out if inflation rises sharply in September or energy costs increase significantly.

Why the ECB May Wait

Despite the inflation risks, Stournaras argued that the ECB should avoid acting too quickly if the economic outlook remains uncertain.

He said policymakers could wait for the bank’s next economic forecasts before making another decision. This would allow the ECB to assess incoming inflation and economic data before determining whether additional tightening is justified.

The comments highlight the balance facing the ECB: inflation remains above target, but policymakers also need to assess whether current price pressures will persist.

Markets Price Another Rate Increase

Financial markets are currently pricing another ECB rate increase, with expectations pointing toward a policy rate of around 2.75% next month.

However, economists remain more cautious about the prospect of another hike. The difference between market pricing and policymakers’ cautious tone could create additional volatility around upcoming inflation data and ECB communications.

Traders will therefore focus closely on September inflation figures, energy prices and the ECB’s next forecasts.

Impact on the Euro and Financial Markets

A stronger probability of another ECB rate hike could support the euro by increasing expectations for higher European interest rates. This could provide upward pressure on EUR/USD, while higher rate expectations may also push European bond yields higher.

Conversely, weaker inflation or a more cautious ECB outlook could reduce rate-hike expectations and weigh on the euro. The broader impact will depend heavily on incoming inflation and energy-price data.

What Traders Should Watch Next

The main market catalysts are:

• September eurozone inflation
• Energy prices
• ECB economic forecasts
• ECB officials’ comments
• Interest-rate expectations
• EUR/USD price action

These developments should be monitored alongside the latest Central Banks, Macroeconomic News and Market Analysis updates.

Market Impact

A higher probability of an ECB rate hike could support EUR/USD and lift European bond yields as markets price tighter monetary policy. However, if September inflation remains contained, expectations for further tightening could ease and put pressure on the euro. Traders should focus on inflation, energy prices and ECB guidance as the key near-term catalysts.