ECB seen holding rate at 2.50% despite inflation near 3.8%
The European Central Bank is widely expected to keep its deposit rate at 2.50% on Thursday after two hikes earlier in 2026, even as eurozone inflation runs at 3.8%. The decision matters for EUR/USD, which has fallen toward 17-month lows.
The ECB’s Governing Council will announce its rate decision at 13:15 GMT, with the main refinancing rate seen staying at 2.65% and the deposit facility rate at 2.50%. Both were raised by 25 basis points in September, following an earlier hike in June.
ECB President Christine Lagarde holds a press conference at 13:45 GMT, where markets will look for signals on a possible third hike in December. Futures markets currently assign more than 80% odds to a quarter-point increase that month.
Eurozone consumer price inflation jumped to 3.8% year-on-year in September, the highest in three years, from 3.2% in August, driven largely by a near-19% rise in energy costs tied to oil prices roughly 50% above their July lows. Core inflation has stayed stable, and the ECB has found no strong evidence of broader second-round effects, giving policymakers room to pause this month despite the headline spike.
Alongside inflation, the council faces strains in French sovereign debt, with the spread between French and German Bund yields reaching levels unseen since the 2009-2011 crisis. This has revived talk of the ECB’s Transmission Protection Instrument, though activating it this week looks unlikely. Analysts at Brown Brothers Harriman noted the ECB’s October credit survey showed tighter lending standards and weaker loan demand in the third quarter, a drag on growth that complicates the roughly 75 basis points of hikes currently priced in by markets for the next year.
The euro has slid nearly 5% against the dollar over the past two months, touching 17-month lows just above 1.1100, pressured by elevated oil prices and concerns over France’s fiscal situation.
A clearly hawkish tone from Lagarde could ease some pressure on the euro, while any sign of reduced commitment to a December hike risks weighing further on EUR/USD, EUR/GBP and EUR/JPY, and could also influence demand for eurozone government bonds amid the ongoing French debt concerns.
Source: FXStreet