J.P. Morgan, BNP Paribas forecast December ECB rate hike as energy risks linger

J.P. Morgan and BNP Paribas have forecasted a 25-basis-point rate hike from the European Central Bank in December, citing persistent inflation risks and high energy prices. Both firms had initially anticipated no rate increase by December. The revised forecasts imply that borrowing costs in the euro zone will stay higher for a longer period due to strong economic growth and ongoing energy supply issues.

BNP Paribas analysts stated that the energy shock's persistence and economic resilience increase the likelihood of a second-round effect. Oil prices remained above $95 a barrel, although they slightly decreased, while eurozone bond yields dropped from their multiyear highs following Iran's conflict, which boosted energy prices and raised inflation fears.

J.P. Morgan explained that factors like persistent energy price pressures, robust growth, persistent core inflation, and an ECB neutral rate that is increasing would lead to a December rate hike. BNP Paribas expects the ECB to increase interest rates by 25 basis points at their upcoming meeting while keeping the door open for further hikes if evidence of second-round effects emerges.