ECB Faces Calls for More Rate Hikes as Energy Prices Surge
Major banks forecast additional ECB rate hikes in December and beyond as renewed energy price pressures threaten inflation progress.
Goldman Sachs, Citigroup and Barclays expect the European Central Bank to tighten monetary policy further, following its latest quarter-point rate increase and projections that inflation will stay above the 2% target for an extended period.
The ECB raised policy rates on Thursday, as anticipated, and signalled that price pressures remain a concern. The six-month-old Middle East conflict has clouded both the inflation and growth outlook for the euro zone, while renewed hostilities between the United States and Iran have driven crude prices above $100 a barrel, threatening fresh upward pressure on consumer costs.
All three banks anticipate another rate increase in December. Citigroup additionally expects a further hike in March 2027. Citi economists warned that the longer inflation remains elevated, the greater the risk it becomes embedded in the economy.
Barclays described the ECB's latest move as a "no-brainer" that underscored policymakers' continued focus on bringing inflation back to target, which the central bank does not expect until late 2027. Goldman Sachs said a December hike would push rates into "mildly restrictive territory."
The ECB has raised borrowing costs aggressively over recent years, though officials have increasingly emphasised that decisions will remain data-dependent. The central bank next meets on October 29.
Market pricing indicates a 93.9% probability of a quarter-point increase in December, according to LSEG data. Investors are also awaiting next week's Federal Reserve and Bank of Japan meetings, which could reinforce the global tightening trend if policymakers signal higher rates for longer.