Eurozone Interest Rates May Remain Elevated Longer Than Expected

Two major brokerages, J.P. Morgan and BNP Paribas, have revised their forecasts to expect another rate hike from the European Central Bank in December. This is a shift from their earlier predictions that the tightening cycle would end without a December increase.

The change in expectations comes as persistent inflation risks and elevated energy prices continue to strengthen the case for further monetary tightening. Energy prices remain above $95 a barrel, with oil prices having eased slightly from recent highs.

BNP Paribas expects the ECB to raise rates by 25 basis points at its September meeting, keeping the possibility of further increases open if evidence of second-round effects from higher energy prices becomes stronger. Second-round effects occur when an initial increase in energy prices begins to spread through the wider economy, including higher wages, services costs, and consumer prices.