ECB Prepares to Hike Rates Amid Ongoing US-Iran War

The European Central Bank (ECB) is poised to hike interest rates on Thursday, taking into account the ongoing US-Iran war and its impact on oil prices. According to sources, the ECB will raise rates by a quarter point to 2.5%.

While policymakers have little appetite for further rate increases, traders anticipate a high chance of another move by December and potentially one more next year. This reflects concerns over energy costs driving inflation.

Economists polled by Reuters believe the room for further rises is limited due to potential negative impacts on economic growth and a soft labor market. Commerzbank economist Marco Wagner noted that 'there is a lot of uncertainty around' indirect effects, such as how intensely and with what time delay energy prices will eventually translate into core inflation.

As the ECB prepares to release new projections, economists expect inflation and growth forecasts to remain broadly unchanged, although some anticipate GDP estimates could be nudged higher. Recent data suggests the economy has held up better than anticipated, with euro zone business activity posting solid growth in August.