The ECB has raised rates twice since June, taking the deposit rate from 2.00% to 2.50%. On Thursday it is expected to do nothing. That is not a sign that inflation has eased. It is a sign that the Governing Council would rather wait for December, when it gets fresh projections and a longer run of data. There are no new staff forecasts at this meeting. The next set arrives on 17 December.
Danske Bank expects a hold on Thursday and one more quarter-point rise in December, which would take the deposit rate to 2.75%. It had expected an October hike until Governing Council members began talking in a softer tone than Lagarde did after the September decision. They now point to demand destruction and the absence of second-round effects, meaning energy costs have not yet fed into wages or services prices in a big way.
Markets are more aggressive than the analysts. They price roughly three further quarter-point rises, about 75 basis points. Danske sees growth headwinds from energy costs, the lagged effect of earlier hikes and tighter fiscal policy as reasons the ECB will do less. If energy prices or low gas storage push the other way, it says, a fourth hike to 3.00% looks more likely than none at all.
Eurostat's confirmed figure for September is 3.8% in both the euro area and the EU, up from 3.2% in August. Energy contributed 1.71 percentage points, the largest share. Services added 1.52 points. Inflation rose in 23 member states between August and September and fell in only one, Slovakia.
The spread is wide. Romania is at 6.5%, Lithuania at 6.1% and Bulgaria at 5.6%. Italy jumped from 3.2% to 4.2% in a month. At the bottom, Sweden sits at 1.0% and Hungary and Denmark at 2.1%. A single policy rate has to cover all of that, which is why the Council keeps stressing that it is not seeing broad wage pressure, even as headline prices run well over target. Friday brings the first estimate of third-quarter euro-area growth, which will show how much the energy squeeze is costing.
Lagarde's term runs to October 2027. After the July meeting she signalled she might not serve it in full, and Bloomberg has reported that the World Economic Forum is courting her. Analysts at Danske flag Thursday as a possible moment for her to announce an early step-down. If she does, it would start a clock that governments are already racing.
Capitals have been talking about a package of the three top ECB jobs, which they hope to settle by the end of December. The presidency is the biggest prize. Spain's Pablo Hernández de Cos, now head of the Bank for International Settlements, and the Netherlands' Klaas Knot, a former Dutch central bank governor, are the two names most often mentioned. Isabel Schnabel is already leaving the Executive Board on 3 January 2027 for the IMF, and Chief Economist Philip Lane departs in May 2027. Three of six board seats could turn over inside a year.
Thursday's decision should be dull. The press conference may not be. A hold with no guidance keeps December open, which suits a Council divided over whether energy inflation will spread. But a Lagarde announcement would shift attention from the next quarter-point to the next president, and from there to the bargain behind the whole ECB board. Watch two things: whether she gives a date, and whether she says anything about December. Either one would move markets more than the rate itself.
