ECB preview: Hiking, not guiding

We expect the ECB to raise policy rates by 25bp on Thursday 10 September, taking the deposit rate to 2.50%, in line with consensus and market pricing.
We expect Lagarde to retain full optionality on the future rate path and offer no firm guidance, limiting the market reaction.
New staff projections to send mixed signals, while scenarios on core inflation could prove dovish.

Danske Research Team Danske Bank A/S

We expect the ECB to raise policy rates by 25bp on Thursday 10 September, taking the deposit rate to 2.50%, in line with consensus and market pricing. The move has been well telegraphed by recent comments from GC members and the July minutes. With headline inflation at 3.3%, growth near potential and inflation risks tilted to the upside, the decision is straightforward according to the ECB. Attention will instead focus on signals about further tightening beyond September, which is not as straightforward in our view.

We expect Lagarde to retain full flexibility, leaving the door open to further tightening without pre-committing to additional hikes. Having moved away from forward guidance, she will likely restate the ECB’s reaction function rather than signal a specific rate path. Market rates have risen sharply over the past month amid renewed US–Iran tensions, with short-term pricing implying a peak deposit rate near 3.00% in 2027. While we view these expectations as excessive, we do not expect Lagarde to push back, given persistent upside inflation risks and a solid growth outlook despite tighter financial conditions.

According to the July minutes, some GC members favour moving rates into “mildly restrictive territory”. As a 2.50% deposit rate is generally seen as the upper bound of the neutral range (1.75%–2.50%), another hike cannot be ruled out, posing an upside risk to our call for no further tightening beyond September. However, moving beyond neutral would deliberately curb demand rather than mainly containing upside risks to medium-term inflation. We believe the lack of spillovers from energy to non-energy inflation means the ECB need not enter restrictive territory. An ECB blog post this week argued that unlike in 2022, energy supply has accounted for 90% of the 2026 inflation episode so far, warranting “a more measured monetary policy response”. We thus expect the ECB to keep the deposit rate at 2.50% from September in both 2026 and 2027.

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Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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