ECB Prepares for Quarter-Point Rate Hike Amid Soaring Energy Costs

The European Central Bank (ECB) is expected to raise interest rates on Thursday in response to rising inflation and high energy costs. The move, which is widely anticipated, will be a quarter-point increase to 2.5%. This decision comes as Brent crude has risen over the last month, while European gas prices have hit their highest since early 2023.

Carsten Brzeski, ING's global head of macro, said that the ECB is 'ready to raise rates again in September' and described it as an 'insurance rate hike'. Traders expect another move by December and one more next year, reflecting energy costs. Most economists believe the room for further rises is limited due to concerns about economic growth.

According to Commerzbank economist Marco Wagner, the hot topics for investors will be comments on indirect effects of inflation and how intensely energy prices will eventually translate into core inflation. The labour market is soft, and wage growth is slowing, which could limit further rate hikes.