ECB Raises Interest Rates Again to Combat Rising Inflation

The European Central Bank (ECB) has raised interest rates for the second time this year, in an effort to combat inflation pressures. ECB President Christine Lagarde stated that above-target inflation 'will be longer-lasting than we had anticipated.'

Inflation in Europe has been rising and is currently at a three-year-high of 3.3% in August. The ECB's previous forecast predicted inflation would return to its target level of 2% by 2028, but the latest projections show it remaining slightly above that level.

Lagarde also mentioned that growth has proven more resilient than expected, boosted by AI activity and investment. This suggests that the economy can tolerate higher levels of interest rates.

Investors have added to bets that the ECB will raise rates again after the decision, with derivatives markets now fully pricing in another increase by year-end.

Konstantin Veit, a portfolio manager at Pimco, stated that 'while hiking in June and September has been agreeable to all... going further would probably split the group and faces a higher bar.'