ECB Expected to Raise Rates with Caution Ahead

The European Central Bank is expected to raise its key interest rates on Thursday, marking the second increase since the outbreak of the U.S.-Iran war, but it may signal caution regarding further hikes. The annual inflation rate in the Eurozone rose to 3.3% in August, the highest level in nearly three years, significantly above the ECB's target of 2%. Policymakers are concerned that further rate increases could raise borrowing costs and suppress economic activity. Although there have been no signs of a second-round effect since the war led to the closure of the Strait of Hormuz and soaring energy prices, the likelihood of workers taking action increases as the war continues and energy prices remain high. Policymakers are aware that colder weather at the end of the year will lead to a significant rise in household heating costs. ECB President Christine Lagarde may emphasize that interest rates are not on a preset path and that investors should not assume that further hikes are inevitable. At the same time, Lagarde is unlikely to rule out the possibility of further action, with some economists believing that the chances of a third rate hike in December are increasing.