Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. REUTERS/Wolfgang Rattay
Reuters - August 18, 2022

The euro zone inflation outlook has failed to improve since a July rate hike, European Central Bank board member Isabel Schnabel said, suggesting she favours another large interest rate increase next month even as recession risks harden.

The central bank for the 19-country bloc surprised investors with a 50-basis-point rate hike last month fearing that inflation, now approaching double digit territory, was at risk of getting entrenched.

That move was not enough to alter the inflation outlook, however, and even a recession on its own would not be enough to tame price pressures, said Schnabel, the head of the ECB's market operations.

"In July we decided to raise rates by 50 basis points because we were concerned about the inflation outlook," she told Reuters in an interview. "The concerns we had in July have not been alleviated... I do not think this outlook has changed fundamentally."

A rate hike in September is seen a done deal with policymakers split between 25 and 50 basis points. Schnabel's comments suggest she is likely to advocate a bigger increase.

Markets have been raising their rate hike bets in recent weeks as inflation pressures appear to mount, and now price in a 55 basis point increase for September and a combined 118 basis points of moves by the end of the year.