ECB May Hike Rates Again as Iran Conflict Fuels Inflation Fears

The European Central Bank (ECB) may raise interest rates in September as policymakers seek to contain inflationary pressures stemming from the ongoing Iran war. According to three sources familiar with the discussions, ECB officials are increasingly prepared to increase borrowing costs for the second time this year.

The move would reinforce the ECB's efforts to prevent a repeat of the severe inflationary episode that followed Russia's invasion of Ukraine in 2022. Inflation is currently close to 3%, and the conflict continues to drive up energy prices, with natural gas and petrol costs emerging as key sources of inflationary pressure.

The eurozone economic activity has held up better than expected, with recent output figures and business surveys pointing to continued resilience. This gives policymakers greater room to focus on containing inflation without imposing excessive pressure on growth.