ECB review: A no-hike decision
|- The ECB kept policy rates unchanged at the October meeting, with the deposit rate at 2.50%, in line with consensus and market pricing.
- We expect a 25bp hike to 2.75% in December, which Lagarde clearly signalled during the press conference. However, the press release had a greater dovish focus on the lack of second round effects and stable core inflation, so we continue to see 2.75% as the terminal rate.
- Lagarde announced she would step down on 7 February 2027, ending her term ahead of time.
The ECB decided to keep its three key policy rates unchanged at the October meeting, as expected, with the deposit rate at 2.50%. The statement placed a greater focus on the lack of second-round effects from the energy shock and broadly stable underlying inflation. This was a dovish change compared to the September meeting, where ECB was more focused on headline inflation and energy costs. At the same time, they noted that tighter financial conditions are likely to weigh on growth and inflation. Hence, the wording was more cautious and less hawkish, which does not suggest the ECB is preparing for a forceful tightening cycle, but rather the “measured” response.
During the press conference, however, Lagarde said that they discussed a hike today, but decided to wait for more data, which they will have in December. If the upcoming data confirms what they see now and there are no major new developments, “the direction is quite clear”, according to Lagarde. We view this as clear guidance for a hike in December, although it might not be representative of the entire GC given the more dovish press statement.
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