ECB to Raise Rates Amid High Oil Prices and Inflation

The European Central Bank is set to raise interest rates on Thursday in response to high oil prices and inflation. The rate hike, which has been widely expected, will likely be a quarter-point increase to 2.5%. This decision comes as Brent crude has risen over the last month, while European gas prices have hit their highest since early 2023.

Carsten Brzeski, global head of macro at ING, said 'We expect the ECB to hike rates by 25 basis points. Another insurance rate hike,' or a dovish rate hike. Policymakers have little appetite to signal further rate increases, but traders anticipate a high chance of another move by December and one more next year.

Economists believe that room for further rises is limited because it could hurt economic growth. Services inflation dropped despite August's overall jump in price growth, and the labour market is soft with wage growth slowing down.