ING Research Global Head of Macro Carsten Brzeski expects the European Central Bank to hold all three key rates at its Oct. 29 meeting, arguing higher bond yields have already tightened financial conditions.
Brzeski links the yield pressure to France's fiscal and political turmoil. The call is his analysis, not an announced ECB decision. The central bank says it will respond to incoming evidence at each meeting and has left future rate moves open.
Brzeski estimates that the rise in German government bond yields since the September meeting has affected growth and inflation about as much as a further 25-basis-point policy rate increase. For France, he estimates the effect at about 50 basis points. These are ING estimates, not official ECB calculations.
Eurostat's final data show annual euro area inflation climbed to 3.8% in September from 3.2% in August. Energy contributed 1.71 percentage points to September's rate. On Sept. 10, the ECB raised all three key rates by 25 basis points, setting its deposit rate at 2.50% effective Sept. 16.
ECB President Christine Lagarde said Oct. 17 that longer-term borrowing costs had risen since the previous policy meeting and financing conditions had tightened. She said that pressure could weigh on economic activity and limit the effect of energy prices on inflation more than the ECB had expected in September.
France's 2027 finance bill was filed in the National Assembly on Oct. 1. A preliminary motion to reject it failed on Oct. 13, with 149 votes in favor and 236 against. EconoTimes previously covered French bond yields rising ahead of the budget debate.
ING also points to the duration and intensity of the Middle East conflict, energy-price pass-through and France's fiscal position as factors that could affect the rate outlook. Brzeski sees December as the next possible point for a rate change. Eurostat's October inflation flash estimate is due Nov. 4, and the ECB's Dec. 17 meeting is scheduled to include new staff projections. The ECB's next rate decision is scheduled for Oct. 29.
