The ECB interest rate decision on 29 October is widely expected to bring a pause, but markets are already looking past it to December. A Reuters poll of 73 economists, taken between 5 and 8 October, found all but three expecting the deposit rate to stay at 2.50 percent this month. The central bank raised rates for a second time this year in September, and the debate has since moved to how much further it must go.
Sixty-four of the 73 economists now expect a quarter-point increase in December. That reverses the picture from the previous month’s survey, when more than 90 percent expected no change. Forty of the 70 who gave a peak forecast see the deposit rate topping out at 2.75 percent, while 24 expect 3.00 percent. Financial markets price in nearly three hikes by the end of 2027.
The reason is inflation. Euro area consumer prices rose 3.8 percent in September, close to double the ECB’s 2 percent target, with energy costs up almost 19 percent. Economists in the poll expect inflation to average 3.7 percent in the final quarter, after 3.3 percent in the third quarter. For the year they see 3.0 percent, easing to 2.6 percent in 2027.
Higher energy bills linked to the war involving Iran explain much of the jump. So far, there is little sign that the shock is spreading into other consumer prices, which is the ECB’s central worry. Accounts of the 9 and 10 September meeting showed policymakers agreeing that risks to inflation lean to the upside. President Christine Lagarde has described the response as measured, a phrase that signals patience rather than alarm.
Not everyone sees the need to move in October. Anatoli Annenkov of Societe Generale argues that rising market rates are already doing part of the central bank’s work. Government bond yields have climbed sharply, with investors focusing on France, and tighter financing conditions cool demand without a formal decision. That logic supports waiting for more data before the ECB interest rate changes again.
Others fear the opposite error. Jens Eisenschmidt of Morgan Stanley points to a further hike, possibly in March, as the main risk to the outlook. If energy prices stay high and wage demands follow, the ECB could find that one quarter-point rise is not enough. The ECB interest rate would then rise again, and rate setters would face the awkward task of tightening into weak growth.
Growth is indeed modest. The poll puts expansion at 1.0 percent this year, 1.2 percent in 2027 and 1.3 percent in 2028. The ECB interest rate has to work against that fragile backdrop, since those figures leave little cushion for households and firms already paying more for energy and credit. Finance ministers meeting in the Eurogroup will watch the ECB interest rate path closely because it feeds directly into the cost of government borrowing.
The French bond market adds a political layer. Yields near 5 percent have revived talk about the ECB’s Transmission Protection Instrument, the tool designed to limit disorderly spreads between member states. The ECB has not signalled any intervention, but the debate shows how rate decisions and fiscal stability now overlap in Paris and Frankfurt.
On 29 October, the Governing Council will publish its ECB interest rate decision and Lagarde will explain it at a press conference. A hold with a hawkish tone would confirm the December expectation. A surprise move would shake markets that currently see no urgency. Either way, the ECB interest rate remains the key variable for European borrowers heading into 2027.
