ECB Hikes Rates in Response to Iran War-Driven Inflation

The European Central Bank (ECB) is expected to raise interest rates on Thursday for the second time this year, in response to rising inflation triggered by the Iran war. Economists predict a rate hike of 0.25 percentage points, taking the policy rate to 2.50% from 2.25%. The ECB's June rate rise had not dented bank lending activity in the eurozone, which picked up pace in July.

The war has caused oil prices to surge above $100 a barrel, reviving fears of price hikes in fuel-importing countries within the eurozone. 'A September hike looks all but locked in,' said Alessia Berardi, head of global macroeconomics at the Amundi Investment Institute. 'Inflation remains elevated and should stay sticky over the next few months before easing toward the second half of next year.'

ECB president Christine Lagarde is likely to take comfort from recent growth data, which shows the 21-country eurozone economy holding up better than anticipated despite higher fuel costs.