Deutsche Bank Sees ECB Rate Hike in December Amid Energy Risks

Deutsche Bank is now predicting that the European Central Bank (ECB) will raise interest rates by 25 basis points in December, following a likely hike in September. The bank's research division had previously projected interest rates to peak at 2.5%, slightly above the ECB's current deposit facility rate of 2.25%. However, Deutsche Bank now expects a more likely terminal ECB interest rate of 2.75% due to persistently high energy risks and weaker economic growth.

The prolonged conflict in Iran is adding to inflation risks in the Eurozone, but labor market conditions remain relatively weak. As a result, there is little evidence that broader price pressures are driving wage increases. The ECB's next monetary policy decision is scheduled for September 10, with the market expecting an interest rate hike.

Deutsche Bank's revised projection aligns with an increasing number of securities firms anticipating further tightening of monetary policy in the Eurozone this year. This reinforces expectations that borrowing costs will remain higher for longer as economic growth persists and energy risks have not subsided.