The European Central Bank (ECB) is expected to raise its key interest rate by a quarter of a percentage point, bringing it to 2.5%, in a move aimed at curbing inflation, which has reached its highest level in three years in the eurozone. This increase, the second in a year, comes as the ECB seeks to prevent rising oil prices from triggering broader inflation across the economy. Inflation in the eurozone reached 3.3% in August, driven largely by energy costs. While this move could help stabilize prices, it also risks reducing household purchasing power and further straining an economy already showing signs of slowing growth. In France, the rate hike could lead to higher mortgage rates for those seeking new loans or renegotiating existing ones, effectively reducing their disposable income. Frederik Ducrozet, a financial strategist at Pictet Wealth Management, warns that this could weaken consumer spending and slow economic activity. The ECB is particularly concerned about the risk of inflation becoming entrenched through wage demands, which could lead to a self-reinforcing cycle of rising prices and higher wages. However, the central bank believes that raising the cost of borrowing is necessary to prevent long-term damage to price stability. Markets are also anticipating further rate increases in the coming months. Christophe Boucher from ABN AMRO Investment Solutions points out that continued tightening of monetary policy could pose growing risks to the eurozone economy. If long-term government bond rates rise along with ECB rates, it could amplify the financial pressure on countries like France, which already faces a growing interest burden. French 10-year government bonds now offer investors a yield of around 4.20%, increasing the country’s debt costs and limiting its fiscal flexibility, especially as it approaches the 2027 presidential election. On the other hand, savers and certain financial institutions may benefit from the rate increase. Higher interest rates can boost returns on savings accounts, euro-denominated funds, and bonds, which are typically held by insurers and other investors. Commercial banks could also see improved profitability, as the cost of borrowing for customers rises faster than the interest they pay on deposits. Additionally, the ECB would offer better returns on the funds banks deposit with it, further improving their margins. While this could strengthen the balance sheets of banks and insurers, it comes at the expense of households and governments already struggling with higher borrowing costs.