ECB likely to hold rate at 2.50%, markets eye December for next hike
Policymakers are expected to leave the deposit rate at 2.50% on Thursday, with Morgan Stanley pointing to December as the more likely point for a further move. The decision matters for EUR/USD, eurozone bonds and the euro's path into year-end.
Morgan Stanley argues there is still no clear evidence that the recent energy price shock is feeding through to broader inflation via second-round effects. The bank also notes that climbing long-term bond yields are already doing some of the central bank’s tightening for it, which takes away any pressure to act immediately.
That leaves December, once new economic data and updated staff forecasts are available, as the point the bank sees as the natural moment for a policy shift. A Reuters survey taken earlier this month found most of the economists polled expect a hold this week, while a clear majority anticipate a 25 basis point increase at the December meeting — a marked change from the previous survey, when the tightening cycle was widely seen as finished.
Rising sovereign yields, especially in France amid ongoing fiscal and debt concerns, are likely to feature in the European Central Bank’s (ECB) deliberations. ING economists say the French fiscal situation and higher yields are already tightening financial conditions on their own, reinforcing the case for a pause now. Commerzbank expects one more increase, to 2.75%, in December, followed by a plateau through 2027, citing expected softer oil prices and the restraining effect of higher yields.
Attention will centre on ECB President Christine Lagarde’s press conference for any hints on the path ahead. The rate decision is due at 13:15 GMT, with the press conference at 13:45 GMT.
A string of eurozone indicators follows: Germany’s Ifo survey on Monday, GfK consumer confidence on Wednesday, and eurozone sentiment data on Thursday. Flash third-quarter GDP and October inflation readings from France, Germany and other member states arrive Friday, offering an early signal on whether the case for a December move is building.
Why it matters for markets: A hold at 2.50% is largely priced into EUR/USD, so the euro’s reaction will hinge on whether Lagarde leans toward confirming December hike expectations or keeps all options open. Rising French bond yields and any ECB comment on them could also move sentiment toward French government debt, while this week’s eurozone data flow may quickly shift pricing for the December decision.
Source: investingLive