ECB Governors See a December Rate Hike as All but Certain, Then a Pause, Sources Tell Reuters

Hours after the European Central Bank held rates unchanged on Thursday — a decision Awaaz Punjab reported earlier today — three policymakers told Reuters a hike on December 17, taking the deposit rate to 2.75%, is all but certain barring a sudden collapse in energy prices. They expect a pause after that, because ECB estimates show higher bond yields will already slow growth and inflation in 2027-28.

Awaaz Punjab Investigations Desk29 October 20263 min readRead in all 3 languages

European Central Bank policymakers expect to increase interest rates in December to fight high, energy-led inflation and then pause, three sources told Reuters on Thursday, in a follow-up to the ECB's decision earlier in the day to leave rates unchanged, which Awaaz Punjab reported this morning.

Source: Reuters

Three policymakers who spoke to Reuters after Thursday's meeting said a hike on December 17, which would take the ECB's deposit rate to 2.75%, was all but certain, barring a sudden collapse in energy prices. An ECB spokesperson declined to comment, Reuters reported. The accounts are the sources' expectations, not an ECB decision: the December move has not been taken yet.

The same sources expected the ECB to hit the pause button thereafter. ECB estimates circulated before Thursday's meeting showed that the recent increase in bond yields would lower economic growth by a cumulated 100 basis points and inflation by 90 basis points in 2027-28, compared with the September baseline projection — in effect, tighter market borrowing costs doing part of the central bank's work for it.

2.75%Deposit rate if the December hike lands

100 bpsEstimated cumulative drag on growth from higher bond yields, 2027-28

90 bpsEstimated drag on inflation from higher yields, 2027-28

3.8%Euro area inflation in September, with energy inflation at 18.9%

President Christine Lagarde had already hinted at another hike in December, warning that high and rising energy costs were fuelling inflation risks. In Reuters' main report of the meeting, Lagarde said policymakers had debated a hike on Thursday before agreeing to wait until December to gather more data, calling the interim period 'information-rich' and saying 'the sense of direction is quite clear.' The ECB has raised rates twice this year to stop an Iran war-induced energy price jump from becoming entrenched inflation.

Source: Reuters

Why it matters beyond Frankfurt: the ECB's path helps set borrowing costs across the euro area at a moment when oil and gas prices — Brent crude traded near $114 a barrel on Thursday — are feeding inflation worldwide, including for Punjabi and Indian families in Europe facing higher fuel, heating and remittance costs. What happens next is the December 17 meeting itself: if energy prices hold near current levels, the sources' account points to one more hike and then a wait-and-see pause while the ECB watches what higher bond yields do to growth.