ECB Set to Hike Interest Rates Amid Eurozone Inflation Spike

The European Central Bank (ECB) is set to raise interest rates by a quarter of a percentage point, from 2.25% to 2.5%, in an effort to curb inflation without cooling down the economy too much.

This decision comes as inflation in the eurozone has reached its highest level since autumn 2023, with headline inflation standing at 3.3%. Core inflation, which excludes energy and food prices, remains stable at around 2.4%, close to the ECB's 2% target.

The ECB is trying to strike a balance between controlling inflation and supporting economic growth. Raising interest rates will make borrowing more expensive, which should reduce spending and help bring down prices. However, with energy costs being a major contributor to inflation, higher interest rates may not have much of an impact on oil prices.

Economists consulted by Reuters expect the rate hike cycle to end at 2.5% this year, but some, like Deutsche Bank, anticipate another increase in December to 2.75%. The ECB will also publish new macroeconomic projections for inflation and growth, which may show an upward revision of both.