ECB Prepares Second Rate Hike Amid Sticky Inflation

The European Central Bank is set to raise interest rates for the second time in September, according to a Reuters poll. The move comes as high energy prices push inflation further away from the bank's 2% target.

Eighty-three percent of respondents, 57 out of 69, expect the ECB to increase its deposit rate by a quarter point to 2.50% in September. This would be the shortest tightening cycle since 2011, when the bank raised rates twice in response to an energy-price shock.

George Buckley, chief European economist at Nomura, said, 'The longer oil prices stay at these levels, the higher they go, the greater the risk we see second-round effects developing. The ECB can't do anything about the second-round effects without seeing them but they can act early which is what the ECB has been doing.'

Economists have raised their inflation forecasts for this year and next, with median predictions for the final two quarters of 2023 increasing to 3.0% and 3.2%. Inflation is not expected to return to the ECB's 2% target until the third quarter of 2027.

Despite a stronger-than-expected economic growth in the last quarter, with an expansion of 0.4%, economists predict further growth of 0.2% and 0.3% this quarter and next. The poll's 2026 growth forecast has been raised to 0.8% from 0.5% in July.