ECB seen pausing now, hiking in December

Analysts and economists broadly expect the European Central Bank to leave interest rates unchanged at its October policy meeting while preparing for another increase in December. The prevailing policy view is an October pause followed by a December hike, with money markets assigning a high probability that rates will rise before year-end. This sequence is seen as allowing policymakers time to assess the impact of earlier tightening on the euro area economy and financial conditions.

Expectations for no policy action in October reflect a desire to evaluate how previous rate hikes have affected growth and inflation dynamics. Wage negotiations in the fourth quarter of 2026 and the evolution of financing conditions are highlighted as key elements that will inform the December decision. Against this backdrop, current policy settings are viewed as on hold only temporarily, rather than marking the end of the tightening cycle.

Indicators from both markets and surveys point to a strong consensus that the ECB will raise rates in December. ADM said money markets are pricing a 73% chance of a December hike and 69 basis points of tightening over the next 12 months.

Nomura said the decision to leave rates unchanged at the October meeting will be unanimous, with the ECB in no rush to raise rates.

Forecasts diverge on the level at which the ECB deposit rate will ultimately peak and how many additional moves will be required. One projection anticipates further rate hikes in December 2026 and March 2027, taking the deposit rate to a terminal level of 3.00%. In that view, the December hike is described as a near certainty, while a March move is seen as part of risk management to guard against persistent inflation pressures.

Other analysts see the tightening cycle nearing its end with a final increase in December. One scenario expects the ECB to keep the deposit rate at 2.50% in October and deliver a last hike in December. Another set of projections foresees a December increase of 0.25 percentage point, which would bring the deposit rate to 2.75%, followed by a period of rate stability. These outlooks share a common assumption that inflation risks remain to the upside but also recognise that tighter financial conditions and previous hikes are already working through the economy.

Across these assessments, a gradual and measured approach to policy tightening is emphasised. The ECB is described as having tightened proactively yet cautiously, seeking to balance inflation control against growth risks. The anticipated December move, whether seen as the final step or part of a modest further adjustment, fits within this framework of gradualism as policymakers respond to still-elevated inflation and changing financial conditions.