ECB Set for Second Rate Hike as Energy Prices Fuel Inflation

The European Central Bank (ECB) is expected to raise interest rates once more next month as high energy prices continue to push inflation above its 2% target. According to a Reuters poll, an 83% majority of respondents, or 57 out of 69 economists, anticipate the ECB will increase its deposit rate by a quarter point to 2.50% in September.

This move would mark the shortest tightening cycle since 2011 when the ECB raised rates twice in response to an energy-price shock. Economists have lowered their inflation forecasts for this year but have since reversed course, with median predictions for the final two quarters of 2023 raised by 20 basis points to 3.0% and 3.2%, respectively.

While some experts predict a rate hike will be enough to keep policy unchanged through at least the middle of 2027, others warn that a single increase might look like fine-tuning, which could undermine its effectiveness in monetary policy.