Barclays expects ECB to deliver another rate hike in December as inflation pressures persist

Barclays expects the European Central Bank to raise interest rates by another 25 basis points in December, as higher inflation projections and rising energy prices amid the U.S.-Iran war strengthen the case for further policy tightening.

The forecast follows the ECB's decision on Thursday to raise its key rates by 25-bp. It also released new projections showing inflation would likely stay above its 2 percent target for an extended period.

Traders are now pricing in a 93.9 percent chance of a quarter-point rate hike from the ECB in December, according to LSEG data.

Goldman Sachs also expects the central bank to hike rates by 25-bp in December, saying it would take rates into "mildly restrictive territory".

Attacks by the United States and Iran since late August on military, shipping and energy assets across the Middle East have pushed oil prices back above US$100 (HK$780) a barrel, reviving concerns about imported inflation in the fuel-dependent euro zone and complicating the ECB's fight against price pressures.

Barclays said on Thursday the ECB's baseline outlook shows inflation returning to its 2 percent target only by late 2027, after the central bank delivered what President Christine Lagarde called a "no-brainer" 25-bp rate hike.

The ECB has raised borrowing costs aggressively over the past several years in an effort to curb inflation, though officials have increasingly stressed that policy decisions will remain data-dependent.

While Barclays sees little chance of an October move, it expects the central bank to wait until December when policymakers will have updated economic forecasts in hand.

Reuters

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