Vanguard: ECB set to hike, with risks skewed towards additional tightening

September 8, 2026

Josefina Rodriguez, Economist at Vanguard, comments on next Thursday's ECB meeting:

Bottom Line: We expect the ECB to raise rates by 25bps at Thursday's meeting, taking the deposit facility rate to 2.50%, in line with market pricing. The updated staff projections are likely to show a combination of stronger-than-expected activity, softer near-term inflation, and a more persistent medium-term inflation profile driven by higher energy prices. While the Governing Council is expected to endorse the rate increase, we do not expect meaningful guidance on the path ahead. Instead, President Lagarde is likely to emphasise data dependence and a meeting-by-meeting approach, leaving the door open to either a pause or additional tightening depending on how the inflation outlook evolves.

Key Takeaways

• The ECB is set to deliver another 25bp hike. Policymakers have broadly signalled support for a rate increase at this meeting, and markets have fully priced the move. The Governing Council is likely to present the decision as a response to remaining inflation risks, particularly those stemming from higher energy prices and the possibility of more persistent inflationary pressures.
• Growth has proved more resilient than expected. Incoming activity data have generally surprised to the upside. Q2 GDP growth was stronger than anticipated and survey data suggest the economy has remained resilient despite ongoing external uncertainties. As a result, we expect the ECB staff projections to include modest upgrades to growth forecasts for both 2026 and 2027.
• Near-term inflation has been softer, but medium-term risks have increased. Recent inflation releases have surprised modestly to the downside, with both headline and core measures running below the levels anticipated in the June projections. Wage indicators, surveys and measures of inflation expectations have also remained broadly contained. However, the renewed increase in gas and energy prices points to stronger inflation further ahead, meaning staff projections are likely to show slightly lower inflation in the near term but a more persistent inflation profile thereafter.
• Policy communication is likely to remain focused on optionality. We expect the ECB to maintain its current assessment of downside risks to growth and upside risks to inflation, while reiterating that future decisions will remain data dependent and taken on a meeting-by-meeting basis. President Lagarde is likely to acknowledge the softer inflation data but emphasise the risks posed by higher energy prices, providing little explicit guidance on whether additional tightening will follow.
• Risks to the policy outlook are skewed towards additional tightening. While the ECB is unlikely to pre-commit to further action, the balance of risks has shifted in a more hawkish direction. Elevated energy prices, the possibility of more persistent inflation, and the risk of second-round effects mean the Governing Council is likely to keep the door open to additional hikes should inflation evolve less favourably than expected.

Our view: this is likely the final hike, but the bar for further tightening remains low. Our base case remains that September marks the final increase in this tightening cycle. While growth has been resilient, we continue to see the risk of second round effects as low.  However, the balance of risks has shifted towards additional tightening. Should energy prices remain elevated or inflation re-accelerate, the Governing Council could deliver another increase later this year. For now, we expect the ECB to keep its options open while resisting any firm commitment to future rate moves.