ECB Poised for Inflation-Driven Rate Hike Amid Rising Energy Costs

The European Central Bank (ECB) is likely to raise its deposit facility rate to 2.50% due to a resilient inflation-growth mix in the Eurozone, according to DBS Group Research.

Headline inflation has risen to 3.3% year-over-year in August from 2.9% the month before, primarily driven by a 14.3% increase in energy component prices.

The report notes that while core pressures remain contained for now, there are risks of broader wage and services inflation, which could lead to higher European bond yields.

Investors' growing concerns about geopolitical tensions, higher defence expenditure, and other uncertainties have also contributed to the sell-off in global bonds, pushing European rates higher.