ECB Set for September Rate Hike Amid Ongoing Iran Conflict

The European Central Bank (ECB) is expected to raise interest rates in September to combat inflation and contain the economic fallout from the Iran conflict.

This decision follows a rate hike in June, which was the first time borrowing costs had increased in nearly three years. The move aimed to prevent a war-fuelled rise in energy prices from spreading too widely throughout the economy.

With inflation at around 3%, and the Iran conflict ongoing, ECB policymakers believe it's time for another rate hike to bring borrowing costs up to 2.5% from 2.25%. This decision is also seen as a signal to avoid a repeat of the severe bout of inflation following Russia's invasion of Ukraine in 2022.

The ECB has pointed to rising natural gas prices and high petrol prices at the pump as key drivers of inflation, but notes that the euro zone economy is faring better than expected. As a result, there's no need for further tightening signals in September, according to sources.