ECB Eyes September Rate Hike Amid Ongoing Iran Conflict

European Central Bank policymakers are gearing up to raise interest rates at their next meeting in September. The move aims to combat the economic fallout of the ongoing Iran conflict, with inflation nearing 3% and energy prices on the rise.

The ECB had last raised borrowing costs in June, taking them from nearly three years of stagnation. Now, with a war-fuelled increase in energy prices showing signs of spreading across the economy, policymakers believe another hike is necessary to keep inflation under control.

According to sources close to Reuters, ECB governors are considering raising the policy rate from 2.25% to 2.5%. This move would signal their commitment to preventing a repeat of the severe bout of inflation seen after Russia's invasion of Ukraine in 2022.

Rising natural gas prices and high petrol costs have been cited as key drivers of inflation, while output data and business surveys suggest that the euro zone's economy is faring better than expected. Long-term inflation expectations remain anchored at the ECB's target rate of 2%.