ECB's Hawkish Stance Sparks Calls for Further Rate Hikes Amid Inflation Concerns

European Central Bank's (ECB) decision to raise interest rates by 25 basis points has sparked calls for further rate hikes. According to Goldman Sachs, Citigroup, and Barclays, the ECB will tighten policy again in December, with Citi predicting an additional hike in March 2027. The banks are forecasting this move due to renewed concerns over inflation, which they believe will remain above the 2% target for an extended period.

The Middle East conflict has worsened the euro zone's inflation and growth outlook, while rising crude prices have pushed oil above $100 a barrel, threatening fresh upward pressure on consumer prices. Traders are pricing in a 93.9% chance of a quarter-point rate hike from the ECB in December, according to LSEG data.

Barclays described the ECB's rate hike as a 'no-brainer' highlighting policymakers' continued focus on taming inflation, which the central bank does not expect to return to target until late 2027. Goldman Sachs said a December rate hike would push rates into 'mildly restrictive territory'. The ECB meets again on October 29.