The European Central Bank raised its deposit facility rate by 25 basis points to 2.50% on September 10, with the change effective from September 16. Following this decision, financial markets are assessing the possibility of another 25 basis point increase at the upcoming meeting scheduled for October 28–29.
Market participants currently estimate a 28–29% probability of a further rate hike to 2.75% in October, while roughly 71% of the market expects rates to remain unchanged. ECB President Christine Lagarde stated that future decisions will remain data-dependent, allowing the governing council flexibility based on incoming economic indicators.
Persistent inflation remains the primary concern, as price growth continues to exceed the ECB’s 2% target. The bank revised its inflation projections, now anticipating averages of 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. Rising energy costs, driven by conflict in the Middle East and oil prices exceeding $100 per barrel, contribute to these pressures.
The current monetary tightening cycle has impacted eurozone sovereign debt markets, particularly German bunds, which face downward price pressure as yields rise. Investors are monitoring inflation data and geopolitical developments ahead of the late October meeting to determine if the current 2.50% rate represents the peak of the cycle.
