- European Central Bank officials may raise interest rates again as soon as next month
- Inflation remains above 3%, prompting potential further tightening of monetary policy
- Market bets on three more hikes may be too aggressive; December hike seems more likely
European Central Bank officials expect to raise interest rates further, with another increase possible as soon as next month, according to people familiar with the situation.
While policymakers views will continue to hinge on incoming economic data, tighter monetary policy may be required to contain inflation that's stuck above 3%, said the people, who asked not to be identified discussing private conversations.
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Market wagers for three more hikes, however, may be too aggressive, the people said, adding that December may yet prove a more appropriate juncture to lift borrowing costs, as that meeting will be accompanied by fresh forecasts reaching into 2029.
An ECB spokesperson declined to comment.
Traders boosted bets on an October rate move, now seeing a 70% chance of an increase compared with just over 50% earlier. German two-year yields, among the most sensitive to monetary-policy changes, surged 14 basis points to 3.21%, the highest since 2023. The euro erased its decline against the dollar to trade at 1.1630.
“We continue to favor a December hike, with a hike as soon as October possible if energy prices remain elevated,” Modupe Adegbembo, an economist at Jefferies, said in an emailed note.
Policymakers are grappling with an energy shock from the Iran war that's sent inflation to its highest level in almost three years. As expected, they raised borrowing costs on Thursday for the second time since the conflict erupted, cementing the ECB as the top hawk among Group of Seven central banks.
Investors anticipate a lot more action, spurred by a renewed advance in oil prices and an increase in the ECB's projections for inflation and economic expansion. They're now fully pricing three more quarter-point hikes by the end of 2027, with a small probability of a fourth.
Photo Credit: Bloomberg News
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President Christine Lagarde said “markets do what they have to do, and we do what we have to do, which is to provide price stability.” She warned that higher energy costs are set to feed through gradually to core and food-price inflation.
“The conflict in the Middle East and recent developments in Russia's unjustified war against Ukraine have pushed the path of energy prices up further,” Lagarde said. “This is likely to keep headline inflation well above target into the first half of 2027.”
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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