ECB to Hike Rates Amid Inflation Fears and Middle East Tensions

The European Central Bank (ECB) is set to raise interest rates for the second time this year, despite concerns that it may not be effective in tackling inflation caused by energy costs. The decision comes as renewed fighting between the US and Iran pushes up oil prices and threatens to further stoke inflation.

Inflation in the 21-nation eurozone hit a three-year high of 3.3 percent in August, above the ECB's two-percent target. With energy imports playing a significant role, policymakers are under pressure to act quickly.

Andrew Kenningham, chief Europe economist at Capital Economics, expects the ECB governing council to raise its deposit rate from 2.25 percent to 2.5 percent.

Felix Schmidt, senior economist at Berenberg bank, disagrees with the decision, arguing that a rate hike is not the right approach. 'We consider another hike a mistake because there is almost no evidence of knock-on effects,' he said.