ECB’s hawkish stance prompts calls for further rate hikes

The European Central Bank (ECB) has recently raised interest rates aggressively in an effort to combat inflation, which has been persistently high. Analysts from Goldman Sachs, Citigroup, and Barclays predict further policy tightening from the ECB, driven by a surge in energy prices and geopolitical tensions. Inflation is projected to remain above the 2% target for an extended period, posing risks of becoming endogenous.

Citigroup expects an additional rate hike in March 2027, while Barclays highlighted the ECB's continued focus on taming inflation, anticipating it to return to target late in 2027. Traders are pricing in a 93.9% chance of a quarter-point rate hike in December, fueled by concerns over the US and Iran conflict pushing crude prices above $100 a barrel.

As the ECB meets again on October 29, global financial markets are closely watching the outcomes of upcoming Federal Reserve and Bank of Japan meetings, which could further tighten monetary policy if policymakers signal higher rates for longer.