On July 20 (Frankfurt time), according to AFP, fighting broke out again in the Middle East along with the rebound in oil prices, causing the European Central Bank (ECB) to consider carefully before the monetary policy meeting taking place this week. Although most experts still predict the ECB will keep interest rates unchanged, new developments are said to be likely to make the debate within the bank more tense.
The ECB raised interest rates in June - for the first time since 2023 - to curb rising inflationary pressure after the conflict between the US and Iran pushed energy prices up.
After the US and Iran reached an agreement towards ending the war, inflation in the euro area gradually returned to near the ECB target of 2%. At that time, the market was almost certain that the ECB would keep interest rates unchanged in the meeting on July 23.
However, the situation quickly changed when fighting between the two sides broke out again, while Iran announced the closure of the Strait of Hormuz - the world's strategic oil transportation route. This development caused oil prices to increase by about 12% in just one week, raising concerns that inflation could return.
Mr. Felix Schmidt, senior economist at Berenberg Bank, said that the ECB is likely to still keep the benchmark interest rate at 2.25%.
According to him, although oil prices have increased, they are not large enough to create a widespread wave of price increases for goods and services in the euro zone.
Meanwhile, Mr. Carsten Brzeski, an ING expert, said that there is still "a small possibility" that the ECB will continue to raise interest rates, but the scenario of keeping interest rates unchanged is still rated higher.
According to AFP, the new developments may make the debate between the two groups of viewpoints in the ECB more fierce. The "hawks" group wants to continue raising interest rates to control inflation, while the "gourds" group prioritizes easing policies to support economic growth.
In addition to the interest rate decision, investors will also follow the press conference of ECB President Christine Lagarde to look for signals on policy orientation in the coming months.
Some experts predict that the ECB may continue to raise interest rates in September if energy prices remain high, while many others believe that all scenarios can still change as the Middle East situation remains unpredictable.
