ECB expected to pause in October before hiking rates in December – Reuters poll
The European Central Bank (ECB) is expected to leave interest rates unchanged in October before delivering another increase in December, according to a Reuters poll conducted October 5-8.
The survey shows that 70 of 73 economists expect the ECB to hold its deposit rate at 2.50% on October 29, while 64 of 73 anticipate a 25-basis-point (bps) hike in December. A 58% majority expect the deposit rate to peak at 2.75%. However, 24 economists see rates reaching 3.00%, up from just two last month.
The ECB has raised rates twice this year as higher Oil prices stemming from the war in the Middle East have pushed inflation above its 2% target.
Economists now expect inflation to average 3.7% in the fourth quarter, up from 3.3% in the third quarter and above the 3.3% forecast in last month’s survey. Annual inflation forecasts have also been revised higher, to 3.0% in 2026 and 2.6% in 2027, compared with previous estimates of 2.9% and 2.3%, respectively.
The Eurozone economy is expected to grow by 1.0% this year, up from 0.8% in the previous survey. Growth is forecast at 1.2% in 2027 and 1.3% in 2028.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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