[PREVIEW]: ECB Policy Announcement due on 10th September 2026.

• The ECB is set to raise the Deposit Rate by 25bps to 2.50%. A decision backed by elevated inflation, resilient growth and a stable labour market.
• Focus will be on the updated staff projections, where 2027 HICP is expected to be lifted slightly.
• Attention also on any guidance beyond September, though President Lagarde will likely reiterate a data-dependant approach, but hawkish risks dominate.

OVERVIEW: The ECB is widely expected to hike the Deposit Rate by 25bps to 2.50%. Moreover, Reuters source reports suggested policymakers are ready to lift rates in September. The likes of Makhlouf, Simkus, Kocher and Dolenc have explicitly pushed for a hike at the forthcoming meeting. Recent data favours a hike, with annual headline inflation at 3%, well above the ECB's 2% target. Resilient growth metrics in the region and a stable labour market also give policymakers scope to deliver a hike. ING believes the ECB will deliver a 25bps hike while simultaneously pushing back against hawkish market pricing, citing decent core inflation figures. Aside from the decision, attention will be on any updates to the staff projections. Analysts expect growth and inflation forecasts to be revised slightly higher. It is also worth noting that the economic scenarios will be in focus, with the economy and markets currently holding somewhere between the "mild" and "adverse" scenarios from June. Finally, markets will be attentive to any policy direction beyond September. The likelihood is that the statement, and President Lagarde in her press conference, will reiterate the Bank's data-dependent and non-committal approach, keeping the door open but not committing to activity later in the year. Markets will be attentive to how President Lagarde references the latest surge in energy and gas prices, given that the updated staff projections will not encapsulate this due to the ECB’s cut-off date.

DATA: Headline HICP in August held firmly above 3% Y/Y, well beyond the ECB's 2% target. In detail, headline HICP rose 3.3% Y/Y from 2.9%, while core HICP declined to 2.4% from 2.5%; the services component also moderated from the prior. The headline figure cements a September hike, however, the benign core components suggest second-round effects have yet to take place. This view is also shared by the Governing Council, with Nagel the latest to highlight the theme. Elsewhere, growth remains fairly resilient despite the ongoing war in the Middle East and surging energy prices; final Q2 GDP Q/Q printed at 0.6%. Finally, the labour market also remains fairly steady. Given the combination of higher inflation and resilient growth and labour market conditions, policymakers will feel more confident lifting rates in the near term. If this theme continues, the odds of another hike this year will likely also rise.

PROJECTIONS/SCENARIOS: Decision aside, focus will be on the updated staff projections. ING expects inflation forecasts to be revised slightly higher to account for the continued strength in oil and gas prices. GDP could also receive small upgrades, given several Council members have referenced the region's resilient growth. A key caveat is that the ECB's cut-off window for calculating assumptions, likely between 5th-18th August, will already be outdated. Deutsche Bank highlights that during this period, oil prices were lower than in June, while gas prices were higher. In short, the forecasts may well feel somewhat stale. Another point of focus for traders will be the updated scenarios. Goldman Sachs expects the "milder" scenario, whereby energy prices fall quickly, to be retained; once again, two ‘upside’ scenarios are likely to be provided.

Goldman Sachs Staff Projections expectations for baseline:

• GDP: 0.8% (prev. 0.9%) in 2026, 1.3% (prev. 1.2%) in 2027, 1.5% (prev. 1.5%) in in 2028
• HICP: 2.9% (prev. 3.0%) in 2026, 2.7% (prev. 2.3%) in 2027, 2.0% (prev. 2.0%) in 2028
• Core HICP: 2.4% (prev. 2.5%) in 2026, 2.6% (prev. 2.5%) in 2027, 2.2% (prev. 2.2%) in 2028

FUTURE POLICY: Some sell-side analysts believe this will be a one-and-done hike. The latest Reuters poll indicates that 91% of economists surveyed see the rate remaining on hold for the rest of the year. However, both BNP Paribas and JP Morgan now expect another hike in December, having previously forecast no further hikes this year. BNP Paribas wrote: "we think the persistence of the energy shock and the resilience of the economy make second-round effects more likely to materialise". Deutsche Bank opines that another hike in December is "more likely than not", though a material improvement in the Iran situation would likely see the ECB at a terminal rate of 2.50%. Money markets currently see the terminal rate at around 3.00%. Some policymakers have been more explicit about the potential need to raise rates further; Simkus said a hike in September "is not going to be enough", while Radev noted that both October and December are "live meetings". Ultimately, the direction of rates beyond September will be dictated by energy dynamics and their impact on inflation.

LAST MEETING: As expected, the ECB held rates at the non-forecast meeting. The opening statement was near-enough a reiteration of the approach from June, with no forward guidance or pre-commitment provided and the data-dependent and meeting-by-meeting conditionality kept. Additionally, the decision to hold was a unanimous one, but some members did question whether a hike should have taken place. Finally, post-meeting sources confirmed that a September hike would be under consideration.