Sept 4 (Reuters) – J.P. Morgan and BNP Paribas said on Thursday they expect the European Central Bank to deliver another 25-basis-point rate hike in December, as persistent inflation risks and elevated energy prices strengthen the case for further tightening.
Both brokerages had previously expected the ECB’s tightening cycle to end without a December rate increase.
The revised outlooks suggest borrowing costs in the euro zone will remain elevated for longer than previously anticipated, reflecting resilient regional economic growth and ongoing energy supply concerns.
“We think the persistence of the energy shock and the resilience of the economy make second-round effects more likely to materialise,” said analysts at BNP Paribas in a note. Markets have almost fully priced in a 25-basis-point interest rate hike by the European Central Bank at its September 10 policy meeting, indicating a 99.2% probability, according to data compiled by LSEG.
Oil prices eased but remained above $95 a barrel. At the same time, eurozone bond yields retreated from multiyear highs, following recent market pressure as the escalating conflict in Iran boosted energy prices, stoking fears of persistent inflation and tighter monetary policy.
J.P. Morgan said “an interaction between more persistent energy price pressures, solid growth, sticky core inflation and a neutral rate that the ECB sees edging higher” would be the reason for a further rate hike in December.
BNP Paribas expects the ECB to hike interest rates by 25 bps at its meeting next week while leaving the door wide open to delivering more if evidence of second-round effects builds.
(Reporting by Akriti Shah in Bengaluru; Editing by Jochelle Mendonca)
