Reuters Poll Sees European Rates on Hold at 2.50%, with December Hike in Focus
Key Facts
The European Central Bank is expected to keep its deposit facility rate at 2.50% at its meeting scheduled for October 29, while a majority of economists in a Reuters poll expect a hike in December. This path reflects the possibility of a brief pause after September’s increase, with inflation remaining central to monetary policy calculations. The bank raised its key interest rates by 25 basis points in September, saying the conflict in the Middle East continued to generate inflationary pressures. Since September 16, the deposit facility rate has stood at 2.50%, after being 2.25% from June 17. The expected hold in October remains an estimate of what the Governing Council may decide, not a decision it has made.
Participants in the October poll expected the deposit rate to peak at 2.75%, but a large share saw a possible peak of 3.00%. That marks a broader shift toward a higher rate path compared with the previous poll, in which only two economists expected the rate to reach 3.00%. On prices, the median inflation forecast for the fourth quarter rose to 3.7%, from 3.3% in the third quarter. The new fourth-quarter estimate also exceeded the previous month’s forecast of 3.3%. These estimates put the potential rate path against a backdrop of stronger price pressures than expected in the previous poll.
Economists also raised their forecasts for average annual inflation, to 3.0% in 2026 and 2.6% in 2027. The previous month’s estimates were 2.9% and 2.3%, respectively, meaning inflation expectations rose for both years. In its September projections, the European Central Bank forecast headline inflation at 3.0% in 2026, then 2.5% in 2027 and 2.1% in 2028. ECB President Christine Lagarde said inflation was likely to remain well above the 2% target for an extended period. She stressed that the Governing Council would rely on data and make decisions meeting by meeting, without committing to a specific rate path.
Growth forecasts, by contrast, do not point to contraction. A Reuters poll raised its estimate for euro zone economic growth in 2026 to 1.0%, from 0.8% in the previous poll. The poll forecast growth of 1.2% in 2027 and 1.3% in 2028. The European Central Bank’s September projections were more cautious for the first two years, estimating growth at 0.9% in 2026 and 1.4% in 2027, before 1.5% in 2028. The bank described the economy as more resilient than expected, citing an improvement in manufacturing, government spending on defense and infrastructure, and corporate investment in artificial intelligence. These indicators put growth and inflation forecasts on divergent paths, with price pressures persisting despite improved estimates for economic activity.
Higher bond yields provide an argument against rushing to raise rates in October, according to comments the Reuters poll attributed to the governor of the French central bank. He said higher market rates "may do some of the European Central Bank’s work," pointing to tighter financial conditions outside official rate decisions. The Reuters poll said global government bond yields had risen sharply in recent weeks, reflecting expectations of higher inflation and fiscal concerns. In Europe, investors’ attention was focused particularly on France. At the same time, by the time of the poll there was little evidence that war-driven energy price increases had passed through to other consumer prices, a development that could prompt further hikes if it emerges.
The path expected by some economists suggests the October decision may not settle the tightening cycle. Jens Eisenschmidt, Morgan Stanley’s chief European economist, said the quarterly path "could lead to another hike in December," and that the main risk was a further increase "perhaps in March." The ECB Governing Council will hold its monetary policy meeting in Frankfurt on October 29, followed by a news conference. After the meeting, activity and price data will be important in assessing the policy outlook, but the specific item on the calendar available here is Eurostat’s October 30 release of its preliminary estimate of third-quarter gross domestic product for the European Union and euro zone, alongside September unemployment data. Attention will therefore turn first to the October decision, then to the end-of-month indicators and what they add to the December outlook.