Economists see final ECB hike next week in split with markets

The European Central Bank (ECB) is set to raise interest rates next week, according to economists, but not beyond that, in contrast to market expectations of multiple hikes. The majority of Bloomberg survey respondents anticipate a quarter-point increase in the deposit rate to 2.5% through 2027. However, traders price about three more hikes by mid-next year.

This divergence underscores the ECB's struggle to balance monetary policy amid escalating tensions in the Middle East, which are driving up energy prices. While elevated inflation has not yet entrenched itself, risks persist. ECB officials emphasize that the rate hike will likely be a one-off measure, focusing on data dependence, anchored inflation expectations, and contained wage growth.

They stress the importance of preventing second-round effects on wages before demanding a more forceful response. Some economists, such as Lithuania's Gediminas Simkus and Bulgaria's Dimitar Radev, believe a single hike next week will not suffice. Meanwhile, the US and Iran's renewed fighting over control of the Strait of Hormuz poses a significant risk to the ECB's future decisions, as a prolonged disruption could turn an energy-price shock into a broader inflation problem.