ECB's hawkish stance prompts calls for further rate hikes

The European Central Bank's hawkish stance has led to calls for additional rate hikes, according to traders. Goldman Sachs, Citigroup, and Barclays forecast the ECB will impose further tightening as soaring energy prices raise concerns over inflation falling back towards the target. The ECB raised interest rates by 25 basis points on Thursday as expected, predicting inflation would remain above the 2% target for an extended period.

The Middle East conflict and the US-Iran tensions have exacerbated the eurozone's inflation and growth concerns, with crude prices surpassing $100 per barrel, potentially adding upward pressure on consumer prices. Goldman Sachs, Citi, and Barclays all expect another hike in December, though Citi anticipates an extra increase in March 2027.

Citi economists suggest that prolonged high inflation could render the economic risks more significant. The ECB has aggressively increased borrowing costs in recent years to curb inflation, but officials have emphasized that policy decisions will depend on data. The central bank convenes again on October 29. Barclays views the ECB's "no-brainer" rate increase as a reflection of policymakers' ongoing commitment to taming inflation, which they expect not to return to target until late 2027.

Goldman Sachs suggests a December rate hike would push rates into "mildly restrictive territory." Traders price a 93.9% chance of a quarter-point rate hike from the ECB in December, as per LSEG data. The upcoming Federal Reserve and Bank of Japan meetings, which could add to the global tightening trend if policymakers signal higher rates for longer, are also drawing attention.