Markets see more ECB rate hikes ahead as inflation pressures persist

Economy ECBeconomyTop News Markets see more ECB rate hikes ahead as inflation pressures persist Epitokia Prosfiges 1024x576 Relevant News Markets see more ECB rate hikes ahead as inflation pressures persist 12 September 2026 Two doctors face prosecution over Mazonakis’s death as investigations uncover new evidence 12 September 2026 Saudis shut down oil pipeline as Houthis tighten grip on Red Sea shipping 12 September 2026 Theano Thiopoulou 12 September 2026 FacebookXWhatsAppEmailPrintViber Just two days after the European Central Bank raised interest rates again, markets are already pricing in further monetary tightening, as inflation pressures continue to shape expectations for the eurozone’s monetary policy. The ECB raised its deposit rate to 2.50% at its 10 September meeting, but the message from Frankfurt did not signal the end of the rate-hike cycle. ECB President Christine Lagarde kept her position open after the Governing Council meeting, repeating that decisions would be taken meeting by meeting and would depend on incoming economic data. Behind that cautious stance, however, markets are increasingly preparing for a more aggressive scenario. Investors have begun pricing in a new cycle of rate increases. The prevailing scenario points to further hikes through the end of 2027, with borrowing costs potentially reaching higher levels than previously expected before inflation pressures intensified. Markets now see a possible new increase as early as the next ECB meeting on 29 October, if inflation pressures remain strong. The latest estimates for three-month Euribor suggest it could move close to 3% in 2027 and remain at similar levels in 2028. The development would significantly alter expectations for borrowing costs, limiting the prospect of a quick return to a very low interest rate environment. The probability of another rate increase in October has risen to 70%, from just above 50% previously. According to Bloomberg, ECB officials believe another intervention may be needed if inflation pressures remain strong, as inflation continues to run above 3%. However, the same sources consider market expectations for three additional rate hikes potentially too aggressive, while December also remains a possible point for the next move. That meeting is considered important because the ECB will publish new forecasts extending to 2029, offering a clearer picture of the duration of inflation pressures. Despite these reservations, investors have fully priced in three further 25-basis-point increases by the end of 2027, while maintaining a small probability of a fourth hike. The shift in expectations has also been reflected in bond markets, with the yield on Germany’s two-year bond rising by 14 basis points to 3.21%, its highest level since 2023. Regarding the eurozone economy, the ECB kept its inflation forecast for 2026 unchanged at 3%, but raised its projection for 2027 to 2.5%. For 2028, inflation is expected to reach 2.1%. Core inflation is projected at 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028. The ECB also revised growth forecasts upwards, expecting the eurozone economy to expand by 0.9% in 2026 and 1.4% in 2027, while keeping the 2028 forecast unchanged at 1.5%. Stronger economic resilience gives the ECB more room to maintain a tighter monetary policy stance. ING noted, however, that a possible easing of tensions in the Middle East and a decline in energy prices could quickly change the outlook and reduce the need for further interventions. Subscribe to our Newsletter Latest News Two doctors face prosecution over Mazonakis’s death as investigations uncover new evidence Saudis shut down oil pipeline as Houthis tighten grip on Red Sea shipping 30-year-old man in critical condition after explosion in Sotira (photos) Sofia Christodoulou Makri signals EDEK reset with focus on social issues Police make five arrests during overnight targeted operations Cyprus bill eases citizenship registration rules for foreign spouses of Cypriots living abroad Sunny spells with possible afternoon showers and thunderstorms Follow en.philenews on Google News and be the first to know all the news about Cyprus and the world.