BofA Predicts December ECB Rate Hike as Energy Prices Drive Inflation
ECB Rate Hike Outlook and Inflation Drivers
Energy Prices and Inflation Concerns
Sept 24 (Reuters) - BofA Global Research expects the European Central Bank to raise interest rates by 25 basis points in December, citing a renewed energy shock that will keep euro zone inflation above the central bank's target for longer.
Rising gas and oil prices are adding to inflation concerns in Europe, with persistent geopolitical tensions and limited signs of a breakthrough in the Iran conflict threatening to keep energy markets tight through the peak demand winter season.
Recent Central Bank Actions
The ECB was among several major central banks, including the US Federal Reserve and Bank of Japan that raised interest rates this month as policymakers sought to contain inflation risks.
Growth Outlook and Data Volatility
The brokerage says it remains cautious about stronger-than-expected growth in the first half of 2026, as volatility across the data makes it difficult to judge whether the improvement will last.
"Growth could still look okay, but it would likely be less robust than today, and we doubt meaningful second-round effects would have emerged," the brokerage said in a note on Wednesday.
Potential for Earlier Rate Hike
While an October move remains possible, BofA said it would likely require significantly higher inflation data.
Market Reactions and Other Central Bank Calls
Market Expectations for ECB
Financial markets are largely aligned with BofA's ECB call, with traders pricing in a roughly 93% chance of a December rate increase, according to LSEG data.
Bank of England Rate Outlook
Updated BoE Projections
Separately, the brokerage also changed its call for Bank of England on Wednesday, adding a hike in November this year and a follow-up in February 2027.
(Reporting by Kanishka Ajmera in Bengaluru; Editing by Sherry Jacob-Phillips and Ronojoy Mazumdar)
