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The European Central Bank is expected to leave its deposit rate unchanged at 2.50% on October 29 and raise it by a quarter-point in December as euro zone inflation remains far above its 2% goal, according to a Reuters poll published Thursday, October 8. The survey marks a sharp change in economists’ expectations after most had recently thought the central bank’s rate increases were over.
Sixty-four of 73 economists surveyed from October 5 to 8 forecast a December hike, Reuters reported. The poll comes as annual inflation reached 3.8% in September, while policymakers weigh the risk that elevated energy costs will spread into broader prices against concerns that higher borrowing costs could weigh on economic growth.
December hike replaces last month’s hold outlook
In the previous month’s Reuters survey, more than 90% of respondents expected rates to remain on hold through the end of the year. The latest result instead puts a December increase firmly in the majority forecast, although it remains a survey of economists rather than a decision or commitment by the ECB.
For the October 29 meeting, the expectation was much more settled: all but three of the 73 economists expected the deposit rate to stay at 2.50%. That view matched market pricing cited by Reuters. The ECB raised rates for a second time this year in September, bringing the deposit rate to its current level.
The poll also showed uncertainty about how far tightening might go. Among 70 respondents, 40 expected the deposit rate to peak at 2.75%, while 24 anticipated a peak of 3.00%. Only two economists had forecast a 3.00% peak in the prior month’s survey. Financial markets were pricing nearly three rate increases by the end of 2027, Reuters said.
Inflation outlook has moved higher
Survey medians put euro zone inflation at an average 3.7% in the current quarter, up from 3.3% in the third quarter and above the 3.3% forecast in the previous poll. For the full year, the median forecast rose to 3.0% from 2.9%; for 2027, it increased to 2.6% from 2.3%.
The September inflation reading of 3.8% was close to the ECB’s latest worst-case scenario, Reuters reported. The poll describes a changing outlook for price pressures, but it does not establish how much of the increase is temporary or how quickly it may affect wages, services and other consumer prices.
Reuters said higher energy prices linked to the U.S.-Israeli war with Iran had not yet shown much evidence of spilling over into other consumer prices. Such broader transmission would be an important factor in the case for further rate increases. The wars in the Middle East and between Russia and Ukraine, alongside the approach of colder weather and higher seasonal energy demand, are part of the uncertainty confronting policymakers.
Growth forecasts improve as bond yields rise
The economists also raised their growth outlook. They forecast euro zone economic expansion of 1.0% this year, compared with 0.8% in the previous survey, followed by growth of 1.2% in 2027 and 1.3% in 2028. Reuters attributed the upward revision to signs of stronger activity.
That more resilient growth view sits alongside a bond-market selloff that has pushed government borrowing costs higher. Reuters reported that global government bond yields had risen sharply in recent weeks amid inflation expectations and fiscal concerns, with investors in Europe particularly focused on France. Higher market rates can tighten financial conditions even before a central bank changes its policy rate.
Anatoli Annenkov, senior European economist at Société Générale, told Reuters that the rise in market rates could be one argument against an October hike because those rates were already doing some of the work of tightening policy. That consideration helps explain why the poll’s strong expectation of a December increase did not translate into expectations of immediate action at the October meeting.
ECB signals a measured approach
ECB President Christine Lagarde has described the policy response as “measured,” Reuters reported, as officials confront high inflation alongside the possibility that rising yields could hurt growth. The poll’s results reflect economists’ interpretation of that uncertain balance; they are not an official ECB forecast or guidance.
Jens Eisenschmidt, chief Europe economist at Morgan Stanley, told Reuters that he expected the ECB to continue on a quarterly adjustment path, which would imply another increase in December. He identified the possibility of one further increase, perhaps in March, as a risk, while noting that his forecast depended on oil prices not rising further and economic activity not accelerating.
The next scheduled policy decision highlighted in the poll is the ECB meeting on October 29. Economists overwhelmingly expect no change then, while the December increase remains a forecast that may shift with incoming inflation, energy and activity data. The survey did not establish the timing or size of any move beyond the economists’ stated expectations.
