ECB expected to raise rates to 2.50% as Iran conflict revives inflation fears
Markets expect a September rate rise to 2.50% as oil prices climb above $100 amid US–Iran attacks, with the ECB warning more tightening if inflation does not ease.
The European Central Bank is widely expected to raise its main interest rate from 2.25% to 2.50% at its upcoming Governing Council meeting, responding to renewed inflation risks after a spike in oil prices linked to the conflict between the United States and Iran.
Market attention has shifted after a series of attacks since the end of August that struck military, shipping and energy targets, sending oil back above $100 a barrel and reviving concerns about higher consumer prices across the euro area, which imports much of its fuel.
Economists forecast that the ECB will both lift the deposit rate and signal readiness to tighten policy further if inflation outlooks do not improve. Financial markets also price in at least one more rate increase this year and additional moves in the coming year.
Policy limits and bond-market pressures
Analysts say this likely September move could be the last for now, as borrowing conditions have already tightened: long-term government bond yields have climbed to levels not seen since before the global financial crisis, reflecting both inflation worries and concerns about rising sovereign debt.
“A September increase looks almost certain. Inflation remains high and is likely to stay at similar levels over the next few months before beginning to fall in the second half of next year,” said Alessia Berardi, head of global macroeconomics at Amundi Investment Institute. The ECB’s decision will be announced after the Governing Council meets in Berlin, where President Christine Lagarde and her colleagues will present the policy judgment.
Photo: press material from the event
