64 Economists Expect ECB to Raise Rates in December After October Hold
Key Facts
A Reuters poll of 73 economists conducted from Oct. 5 to 8 found that 64 expected the European Central Bank to raise interest rates in December, a clear shift from the previous month's poll, when more than 90% of respondents expected rates to remain unchanged. By contrast, all but three respondents expected the bank to keep its deposit facility rate at 2.50% at its meeting scheduled for Oct. 29. The results point to broad expectations that the bank will wait in October, with discussion shifting to a possible move at year-end. This comes as economists raised their inflation estimates, and some broadened their forecasts for the potential peak in interest rates. The bank raised its key interest rates by 25 basis points on Sept. 10, saying the Middle East conflict continued to generate inflationary pressures. ECB President Christine Lagarde said inflation would remain well above target for an extended period.
The poll figures reflect a shift in expectations over one month: after more than 90% had expected rates to remain unchanged, 64 of 73 economists now expect a December increase. The shift was not limited to the timing of a hike: 40 of 70 economists expected the deposit rate to peak at 2.75%. Another 24 participants saw a possible peak of 3.00%, compared with just two economists in the previous month's poll. A peak of 2.75% remains the most common forecast, but the larger group putting 3.00% as a possible ceiling highlights diverging views on the path. Jens Eisenschmidt, chief European economist at Morgan Stanley, said the bank's continued quarterly adjustment path "should lead to another hike in December." He added that the main risk was a further increase, "perhaps in March."
On prices, economists raised their forecast for average inflation to 3.7% in the fourth quarter of 2026, from 3.3% in the third quarter; the estimate also exceeded the previous month's fourth-quarter forecast of 3.3%. The median forecast for annual inflation rose to 3.0% in 2026 and 2.6% in 2027, from 2.9% and 2.3% in the previous month's poll. The ECB's September projections put headline inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. The bank said the Middle East conflict continued to generate inflationary pressures, and that inflation was likely to remain above target for an extended period. At the time of the poll, there was little evidence that war-driven energy price increases stemming from the U.S.-Israeli conflict with Iran had spread to other consumer prices. A Reuters report said evidence of such pass-through could prompt further rate increases.
Euro zone growth estimates improved in the Reuters poll. The forecast for 2026 growth rose to 1.0% from 0.8% in the previous poll, with growth of 1.2% expected in 2027 and 1.3% in 2028. The ECB's September projections were more cautious for 2026, at 0.9%, but forecast higher growth in 2027 and 2028, at 1.4% and 1.5%, respectively. The bank said the economy had shown resilience in the second quarter and manufacturing had remained solid as government spending on defense and infrastructure increased. It also said artificial intelligence-related activity had emerged in digital services, corporate investment and exports. The unemployment rate stood at 6.4% in July, according to the bank.
Higher bond yields offer a factor that could ease the need for an immediate increase in the official interest rate. Global government bond yields rose sharply in the weeks before the poll amid higher inflation expectations and fiscal concerns, with investors in Europe focused particularly on France. Anatoli Annenkov, chief European economist at Societe Generale, said rising market rates "are doing some of the ECB's work." In his view, this is a reason to oppose an early rate hike in October, as tighter financial conditions in the market preceded any new bank decision. Price expectations remain a countervailing factor, particularly if the impact of higher energy costs spreads to other consumer prices. The Reuters report found little evidence of such pass-through at the time of the poll.
The ECB's Governing Council will hold its monetary policy meeting in Frankfurt on Oct. 28 and 29, followed by a news conference after the second day's meeting. The monetary policy decision is scheduled for release at 14:15 Central European Time on the day of the meeting. Investors are watching whether the bank will stick to the hold expected by most participants in the October poll or signal the possibility of a later increase as inflation estimates rise. The meeting follows September's 25-basis-point increase and comes amid expectations that inflation will remain above the bank's target for an extended period. According to Eurostat's calendar, the preliminary estimate of third-quarter gross domestic product for the euro zone and European Union is scheduled for release on Oct. 30, along with September unemployment data. A December move remains the focus of most poll participants' expectations.