ECB Rate Hikes May Be Ahead as War in Middle East Worsens Inflation

Cyprus economists are warning that further interest rate hikes by the European Central Bank (ECB) may be on the horizon due to rising oil prices and inflationary pressures.

The economists, speaking to the Cyprus News Agency, pointed out that if the war in the Middle East continues to worsen, there will likely be greater pressure on oil prices, leading to higher inflation and further interest rate increases.

University of Cyprus economist Sofronis Clerides said that the ECB's latest rate increase was expected given recent inflationary trends. However, he cautioned that borrowers with floating-rate loans would face increased borrowing costs, discouraged investment, and higher loan repayments.

Clerides also noted that ECB president Christine Lagarde's statement that inflation will return to its 2 per cent target by the end of 2027 suggests that the bank expects inflationary pressures to worsen in the near term. This would mean households could face an extended period of financial pressure, with higher interest rates adding to their burden.