European Central Bank: Two more hikes remain the baseline – Nordea

Nordea analysts Jan von Gerich and Tuuli Koivu note that the European Central Bank (ECB) delivered a 25bp rate hike and signalled a bias toward further tightening as its projections show Eurozone inflation above target through 2028. They expect additional 25bp hikes in December and March 2027, while acknowledging upside risks from Middle East tensions and energy prices and downside risks to growth.

Nordea sees more ECB tightening ahead

"The ECB raised rates by 25bp, in line with expectations. While the policy-related paragraph in the press release was left unchanged, emphasizing the ECB’s data-dependent, meeting-by-meeting approach and no pre-commitments to a particular rate path, baseline forecasts showing inflation above target throughout 2026, 2027 and 2028 clearly signal a bias towards further rate hikes."

"We expect to see 25bp rate increases at the December meeting and in March 2027, but there are risks in both directions to this view, given the uncertainty created in particular by elevated geopolitical risks."

"We maintain our baseline of two further 25bp rate hikes at quarterly intervals, with the next one in December and the second in March 2027."

"However, given the limited signs of broader inflationary pressures so far and a weakening in inflation momentum, we still think the ECB has time to monitor how the situation evolves before raising rates again."

"Financial market pricing has recently shifted towards faster and more numerous rate hikes, and those moves continued today."

"As we still think the December meeting is the more likely timing for the next hike, we see some room for these expectations to correct lower, though a lot naturally hinges on the development in energy prices."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)