10.09.202606:30:28UTC+00ECB Expected to Hike Again as Inflation Stays Elevated

The European Central Bank is set to raise its key interest rates by 25 basis points on Thursday, marking the second increase since the outbreak of the US-Iran war. At the same time, officials are expected to signal caution about further tightening that could weigh on economic activity. The main refinancing rate is forecast to rise to 2.65%, with the deposit rate reaching 2.5%.

Inflation in the eurozone accelerated to 3.3% in August, its highest level in three years and well above the ECB’s 2% target. Yet so far, there is little evidence of the second-round inflation effects that policymakers typically fear when energy prices spike, as they have since the closure of the Strait of Hormuz.

Many economists remain skeptical that additional rate hikes will be needed, warning that further tightening could push the economy toward recession. Nonetheless, interest-rate futures are still pricing in a third increase by December. Policymakers, for their part, continue to highlight upside risks to inflation, while the recent rise in bond yields adds another layer of uncertainty to the policy outlook.