ECB expected to hold rates on 29 October as markets price a December hike

A pause expected after September's hike

Analysts and investors expect the European Central Bank to leave its key rates unchanged at its meeting on Thursday, 29 October, keeping the deposit rate at 2.5%, the main refinancing rate at 2.65% and the marginal lending rate at 2.90%. The pause would follow the 25 basis point increase carried out in September, the first ECB rise in more than three years, and the bank is expected to use the time to study its effects on the economy. The Federal Reserve held its target range at 3.75% to 4% on Wednesday, 28 October, after its previous meeting's increase, and two members of its committee voted for a further quarter-point rise. Analysts say the data published since September is not enough to change the bank's course, even as the energy shock linked to the Middle East conflict remains a concern.

Markets price in a December increase

Market pricing points to a pause followed by another increase. The ECBWatch tool, which aggregates investor sentiment, gives a 96% chance that rates stay unchanged at the Thursday meeting and an 81% chance of a 25 basis point rise in December. Allianz Global Investors expects two more 25 basis point increases, in December and possibly in March, which would lift the deposit rate to 3%. The firm ties that call to oil prices above $100 a barrel, an inflation rate it expects to exceed 4% this winter and an economy that still shows resilience. Amundi's Alessia Berardi also expects no move on Thursday, but says the bank will keep a restrictive tone and may acknowledge market strains without acting on them.

“The European Central Bank will keep rates unchanged on Thursday, although it will maintain a restrictive tone.”

No change on 29 October 202696%

25 basis point hike in December 202681%

No change on 29 October 2026

96 %

25 basis point hike in December 2026

81 %

Data from the article text

Inflation and the Fed backdrop

Euro area inflation rose to 3.8% in September, a three-year high and up six tenths in a single month. Core inflation, which excludes energy, fresh food, alcohol and tobacco, stood at 2.5% in September, up one tenth, a reading analysts say does not yet show second-round effects. In the United States, the Fed's preferred inflation gauge was 3.4% higher in August than a year earlier, with core inflation at 3.0%, according to ABC. The Fed's hold came just ahead of the midterm elections and was not unanimous. Allianz analysts also note that the ECB does not intend, for now, to reinvest its 3.3 trillion euro portfolio of long-term bonds under its APP and PEPP programmes.

Headline inflation3.8%

Core inflation2.5%

Headline inflation

3.8 %

Core inflation

2.5 %

Data from the article text

France at the centre of the debate

French 10-year government bond yields rose above 5.14% on 22 October, their highest level since 2002, and the premium over German bonds reached levels not seen since the 2011 euro crisis. Moody's left France's Aa3 rating unchanged with a negative outlook on Friday, 23 October, contrary to general expectations. Protests across several European countries have added to political uncertainty, and the French debate centres on the 2027 budget and the 2027 presidential election. Officials, the bank and analysts say it is too early to activate the Transmission Protection Instrument, created in 2022 and never used, which in theory allows large bond purchases to contain market stress. Allianz analysts note that France and Italy are subject to EU excessive deficit procedures and do not currently meet the conditions for TPI support.

What to watch at the press conference

Lagarde's press conference after the decision is the main focus, with analysts looking for how she addresses the rise in government bond yields. Natixis analysts say the ECB could explicitly refer to these risks to financial stability, which they would read as a sign the bank takes volatility seriously. The September minutes already noted that sovereign debt developments could have implications for future rate decisions. Discussions over renewing the ECB's Executive Committee are also under way, and speculation about Lagarde leaving early forms part of the backdrop. The next scheduled meeting is on 16 and 17 December in Frankfurt.