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The European Central Bank left interest rates unchanged at 2.25 per cent on Thursday, despite a renewed surge in oil prices.
The widely expected decision comes six weeks after the ECB lifted borrowing costs by a quarter point, becoming the first central bank in the G7 to tighten monetary policy in response to sharp increases in energy costs triggered by the conflict in the Middle East.
Since early July, oil prices have gained more than 30 per cent as the ceasefire between the US and Iran collapsed and shipping traffic remains heavily constrained in the Strait of Hormuz.
On Thursday, oil prices rose above $98 a barrel for the first time since early June after Iran-backed Houthi militants claimed they attacked two Saudi Arabian tankers in the Red Sea, creating further disruption to crude supply.
Inflation in the Eurozone has risen well above the ECB’s medium-term target of 2 per cent since March but eased slightly to 2.8 per cent in June, when oil prices fell sharply in response to hopes at the time of resolving the conflict between Washington and Tehran.
Traders are betting that the ECB will raise borrowing costs further. Swap markets have fully priced in two more quarter-point rate increases by the first quarter of next year and expect the next move in either September or October.
This is a developing story
