Barclays Forecasts December ECB Rate Hike Amid Inflation and Energy Price Surge
ECB Rate Hike Expectations and Market Reactions
Barclays' December Rate Hike Forecast
Sept 10 (Reuters) - 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.
Recent ECB Decisions and Inflation Projections
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% target for an extended period.
Market Pricing and Other Analyst Views
Traders are now pricing in a 93.9% 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".
Impact of Geopolitical Tensions on Energy Prices
Middle East Conflict and Oil Prices
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 $100 a barrel, reviving concerns about imported inflation in the fuel-dependent euro zone and complicating the ECB's fight against price pressures.
ECB's Inflation Outlook
Barclays said on Thursday the ECB's baseline outlook shows inflation returning to its 2% target only by late 2027, after the central bank delivered what President Christine Lagarde called a "no-brainer" 25-bp rate hike.
ECB Policy Approach and Future Moves
Data-Dependent Decision Making
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.
Timing of the Next Rate Hike
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.
(Reporting by Rashika Singh in Bengaluru; Editing by Sonia Cheema)
