The European Central Bank is expected to lift its key interest rate again on Thursday, which would mark its second increase since the outbreak of the U.S.-Iran war, according to a BlockBeats report citing Jin10. Even so, officials are seen signaling caution on any follow-up move, as additional tightening could push borrowing costs to levels that start to restrain economic activity.
The backdrop remains inflationary. Euro area annual inflation rose to 3.3% in August, the highest level in nearly three years and still well above the ECB’s 2% target. Yet the second-round effects policymakers had worried about after the closure of the Strait of Hormuz and the jump in energy prices have not shown clear signs of emerging so far.
The report said policymakers are increasingly alert to the risk that a longer war and persistently high energy prices could prompt workers to take action. They are also watching household heating costs as colder weather approaches later this year. ECB President Christine Lagarde is expected to repeat that rates are not on a preset path. At the same time, she is unlikely to rule out further steps, and some economists see the odds of a third rate hike in December rising.
The European Central Bank is expected to raise its key interest rate again on Thursday, according to BlockBeats. If delivered, it would be the second rate increase since the outbreak of the U.S.-Iran war.
The report said the ECB may also send a cautious signal on further tightening, as additional hikes could lift borrowing costs to a level that starts to curb economic activity.
Inflation remains above target
Annual inflation in the euro area rose to 3.3% in August, the highest reading in nearly three years and well above the ECB’s 2% target.
Still, the second-round effects that policymakers had worried about after the war shut the Strait of Hormuz and sent energy prices sharply higher have not yet shown signs of appearing.
Energy prices and winter heating bills in focus
The report said the longer the war lasts, and the longer energy prices stay elevated, the more likely workers are to take action.
Policymakers are said to be especially aware that household heating costs will rise sharply as the weather turns colder toward the end of the year.
Lagarde expected to keep options open
ECB President Christine Lagarde may stress again that interest rates are not on a preset path, and that investors should not treat further hikes as inevitable.
At the same time, she is not expected to rule out more action. Some economists believe the chances of a third rate hike in December are increasing.
The information was attributed to Jin10 in the BlockBeats report.
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