Banks Expect More ECB Rate Hikes as Energy Prices Rise

Goldman Sachs, Citigroup and Barclays expect the European Central Bank (ECB) to continue raising interest rates as renewed increases in energy prices complicate the fight against inflation.

As expected, the ECB raised rates by a quarter of a percentage point on Thursday. It also projected that inflation would remain above its 2% target for an extended period.

The six-month-old conflict in the Middle East has worsened the eurozone’s inflation and growth outlook, while renewed hostilities between the US and Iran have pushed crude oil above $100 a barrel. Higher energy costs could put further upward pressure on consumer prices while weakening economic growth.

Goldman Sachs, Citigroup and Barclays all expect another ECB rate hike in December. Citigroup also forecasts an additional increase in March 2027. Its economists warned that the longer inflation remains high, the greater the risk that it becomes entrenched in the economy.

Markets currently price in a 93.9% chance of a quarter-point rate hike in December, according to London Stock Exchange Group data.

Investors’ attention is also turning to next week’s meetings of the US Federal Reserve and the Bank of Japan, which could reinforce expectations that interest rates worldwide will remain higher for longer.

(Reuters, est)