After nine consecutive interest rate hikes, the European Central Bank will next week consider a pause, alongside the prospect of a tenth increase.

Unlike in previous months, where interest rate hikes were essentially announced, the outcome of the meeting on September 14 is uncertain and may even be marginal.

The two lines in the Board of Directors

However, of the ECB executives who took a position publicly in the previous days, most were in favor of raising interest rates, although they acknowledged that the tightening of monetary policy has reached its final stage and the outcome of the meetings cannot be discounted.

The central bankers of Germany, the Netherlands, Austria, Belgium, Slovakia and Latvia signaled they would support another 25bps hike, which would take the ECB deposit rate to 4%. The Austrian, Robert Holzmann, even mentioned the possibility of needing another increase, beyond the September one.

On the other hand, the governors of the central banks of Italy and Portugal warned of the risks such a decision would have on the Eurozone economy, which, based on current research, showed signs of a major slowdown in the last two months.

The head of the ECB, Christine Lagarde, avoided taking a position, noting only that inflation remains very high and that the decision will be taken based on the data on its course (and the economy in general). In the same vein, French central banker Villeroy de Gallo said the outcome at next Thursday’s meeting is open.

August saw a double reading as headline inflation ran at an annual rate of 5.3%, the same as in July, but core inflation, which excludes energy and food prices, fell to 5.3% from 5.5% the previous month.

Regarding the course of the economy, the latest official figures are those of Eurostat for the GDP of the second quarter, which showed an increase of 0.1% compared to the first quarter and 0.5% on an annual basis.

However, responsible procurement indicators of manufacturing firms in the Eurozone showed a significant further decline in activity in the sector in July and August. Based on the same indicators, it appears that activity in the services sector also contracted last month for the first time since August 2022.

Of the official figures for the summer months, the only ones released are those for retail sales which fell 0.2% in July compared to June and 1% year-on-year.

Based on these data, the two lines at the ECB regarding interest rates have been set up. The “hawks” note that core inflation remains high and that the new forecasts of the central bank services, which will be presented next Thursday, show that the reduction in general inflation will be very slow and will not reach the target of 2 % before the end of 2025.

At the same time, they do not consider the slowdown of the economy to be dramatic, citing the GDP data of the second quarter. They therefore believe that a new interest rate increase is needed to further restrain demand and “ensure” the reduction of inflation to 2% in 2025.

On the other hand, “doves” point out that the new slowdown in the economy over the summer makes a rate hike unnecessary because demand is already falling.