The European Central Bank is expected to raise interest rates on Thursday for the second time this year as it seeks to tackle a wave of inflation driven by higher energy prices amid the war in Iran.
Reciprocal attacks since late August have ended a month of relative calm, with the United States and Iran targeting military and oil assets. The attacks have pushed oil and gas prices higher again and revived concerns about a new wave of price increases across the fuel-importing eurozone.
Economists expect the ECB to raise its key interest rate from 2.25% to 2.50% on Thursday, while signaling its readiness to take further action if the inflation outlook does not improve.
Alicia Berardi, head of global macroeconomics at Amundi Investment Institute, said a September rate hike “seems almost certain.” She added that inflation remains high and is expected to stay elevated over the coming months before beginning to decline toward the second half of next year.
The 21-country eurozone economy is performing better than expected despite higher fuel costs, competition from China and the effects of droughts.
Bank lending accelerated in July, suggesting that the ECB’s June rate hike has not yet affected economic activity and giving policymakers room to take further monetary tightening measures if necessary.
Financial markets are pricing in two or three additional rate hikes by the end of next year.
The ECB is also expected to raise its growth forecasts on Thursday for this year and possibly for 2027, reflecting the resilience of the eurozone economy.
Thursday’s forecasts are unlikely to fully reflect the latest increase in energy prices, with Brent crude reaching $100 a barrel on Wednesday.
Source: Reuters
