The July meeting of the ECB’s Governing Council saw the central bank leave its key interest rates unchanged and simultaneously leave the door open to a rate hike in September.
At the post-meeting press conference, President Lagarde continued to stress that the ECB will take a “meeting-by-meeting” approach to any rate changes and that it was not pre-committing.
In response to whether markets have correctly priced in near term rates, Lagarde responded that “our understanding is that our reaction function is very well understood by markets”.
Given the communications from the ECB, it seems reasonable to factor in a 25bps rate hike over the coming months if the incoming data justify this policy action.
