Deutsche Bank expects ECB to extend rate hikes through December

Sept 7 (Reuters) - Deutsche Bank now expects the European Central Bank to raise interest rates by 25 basis points in December in addition to a September hike, as persistent energy risks keep pressure on the inflation outlook.

The research arm of the bank had previously expected interest rates to peak at 2.5%, only slightly above the ECB's current deposit facility rate of 2.25%, based on forecasts that the energy price shock would be short-lived and economic growth would be weaker.

It now sees those assumptions being challenged, it said in a note on Friday.

Although a prolonged Iran conflict poses upside risks to inflation, euro zone labour market conditions remain relatively soft and there is little evidence so far of broader price pressures feeding into wage growth.

While the brokerage now sees 2.75% as the more likely terminal rate, it said that faster geopolitical easing and weaker growth could cap rates at 2.5%, while a move above 3% lacks justification without broader inflation pressures.

The revised forecast aligns with a growing number of brokerages that expect further ECB tightening this year, underscoring expectations that borrowing costs in the euro zone will remain higher for longer as growth holds up and energy risks linger.

The ECB's next monetary policy announcement is scheduled for September 10, when it is widely expected to hike rates.

(Reporting by Joel Jose in Bengaluru; Editing by Rashmi Aich)