Global Market: Barclays expects ECB to raise rates again in December as inflation risks 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 linked to the U.S.-Iran war strengthen the case for further monetary policy tightening, Reuters reported.

The forecast comes after the ECB raised its key interest rates by 25 basis points on Thursday and released updated projections indicating that inflation could remain above its 2% target for an extended period.

According to Reuters, traders are now pricing in a 93.9% probability of another quarter-point rate increase from the ECB in December, based on LSEG data.


Goldman Sachs has also forecast a 25-basis-point increase in December, expecting the move to push interest rates into mildly restrictive territory.

Escalating tensions in the Middle East have added to inflation concerns. Attacks involving the United States and Iran since late August on military, shipping and energy assets across the region have driven oil prices back above $100 a barrel.

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The rise in crude prices has revived concerns about imported inflation across the fuel-dependent euro zone, potentially complicating the ECB's efforts to bring price pressures under control.

Barclays said the ECB's latest baseline outlook points to inflation returning to the central bank's 2% target only by late 2027. The projection followed the ECB's latest 25-basis-point rate increase, underscoring policymakers' concerns over persistent price pressures.

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The central bank has raised borrowing costs aggressively over recent years to curb inflation, although officials have increasingly emphasised that future decisions will depend on incoming economic and inflation data.

According to Reuters, Barclays sees little likelihood of an additional move in October. Instead, it expects policymakers to wait until December, when they will have a fresh set of economic forecasts and more data to assess the outlook for inflation and growth.

With energy prices remaining elevated and inflation projected to stay above target for longer, the December policy meeting is increasingly emerging as a key point for investors assessing the ECB's next move.