The European Central Bank is expected to raise its key interest rates by 25 basis points on Thursday, marking the second hike since the US-Iran war began, while signaling caution over further increases that could weigh on economic activity. The main refinancing rate is expected to rise to 2.65%, and the deposit rate to 2.5%. Eurozone inflation accelerated to 3.3% in August, its highest level in three years and well above the ECB’s 2% target. However, there have been few signs of the second-round inflation effects policymakers typically fear when energy prices surge, as they have since the war closed the Strait of Hormuz. Economists remain unconvinced that further tightening will be necessary, warning that additional hikes could risk recession. Interest-rate futures, however, are pricing in a third hike by December, while policymakers continue to flag upside risks to inflation and the recent rise in bond yields adds further uncertainty to the policy outlook.