Deutsche Bank shifts ECB rate outlook as energy inflation persists

The bank’s research arm previously anticipated a milder tightening cycle, assuming that economic growth would slow and energy costs would stabilize rapidly. Those projections have been challenged by shifting geopolitical realities, specifically the ongoing volatility surrounding Iran, which continues to exert upward pressure on inflation. Despite these concerns, analysts noted that the euro zone labor market remains relatively soft, with little evidence that current price pressures are triggering a cycle of wage growth.

While the brokerage identifies 2.75% as the new terminal rate, it maintains that a climb above 3% remains unjustified without broader evidence of entrenched inflation. Conversely, a swifter geopolitical de-escalation or a sharp downturn in growth could still cap rates at the earlier 2.5% target. This updated outlook reflects a broader consensus among market observers, who are increasingly pricing in higher borrowing costs for the euro zone as the economy proves more resilient to energy risks than initially expected. The ECB is scheduled to announce its next monetary policy decision on September 10.