ECB Poised to Deliver Second Interest Rate Hike Amid Inflation Concerns

The European Central Bank is set to raise interest rates for the second time this year, further solidifying its position as the most hawkish central bank among the Group of Seven. The quarter-point increase on Thursday has been widely signaled, with policymakers confronting the persistence of West Asia hostilities and renewed increases in fuel costs.

Recent data showed euro-zone inflation jumped to 3.3%, the fastest pace in almost three years and noticeably above the 2% target. In contrast to the US Federal Reserve, whose relatively sanguine view on inflation may be tested by consumer-price numbers in the coming week, the ECB has been unambiguous about the need to tighten pre-emptively.

The debate over a third hike may prove finely balanced, with some officials speculating that a September hike won't be enough. However, investors are largely pricing in a hike for December, even as most economists have suggested Thursday's tightening will be the last for now.