Rate hikes, rate hikes, rate hikes… Each central bank has its own 'woes'.

Liu Ying, a researcher at the Chongyang Institute for Financial Studies of Renmin University of China, told the International Business News that the eurozone’s August consumer price index (CPI) rose above 3%, hitting a three-year high. Energy prices were the primary contributor to the overall CPI increase and the main driver of inflation. Philip R. Lane, Chief Economist of the European Central Bank (ECB), likewise issued a warning: “We are witnessing a second round of energy price increases.” In addition to this surge in oil prices, natural gas prices have also risen sharply—pushing inflation higher and prolonging its persistence, with inflation not expected to return to the ECB’s target until mid-2027. He cautioned that if the energy shock intensifies or persists longer this autumn, pressure on the European economy will further mount. Beyond imported inflation, external interest-rate differentials pose an additional challenge. Liu Ying pointed out that market expectations of U.S. Federal Reserve rate hikes have pushed up dollar-denominated interest rates, triggering capital repatriation. If the ECB does not follow suit, widening interest-rate differentials could accelerate capital outflows and destabilize financial markets. Yet the eurozone’s own recovery remains fragile. The ECB’s September report forecasts GDP growth of just 0.9% for 2026; growth is projected to rise only slightly to 1.4% in 2027 and 1.5% in 2028. Although second-quarter 2026 growth slightly exceeded expectations, it was driven mainly by external demand and tourism. Investment and consumption remain weak, and risks of transmission between wages and prices are rising. “The eurozone’s economic momentum has already slowed, exhibiting stagflation-like characteristics,” Liu Ying analyzed. Rapid rate hikes would stifle investment and manufacturing—sectors whose growth is already precarious. Yet holding rates steady risks allowing energy-driven price increases to transmit along supply chains into wages and service prices. This tug-of-war renders ECB policy decisions exceptionally cautious. Structural constraints cannot be overlooked either. Unlike the United States—a major energy producer—the eurozone relies heavily on imported energy, making it more directly vulnerable to imported inflation. Uneven recovery across member states complicates policy coordination. Moreover, in highly indebted countries such as Italy, rate hikes directly push up government bond yields. For these reasons, the ECB reiterated its “data dependence” principle in its statement, refusing to pre-commit to any fixed interest-rate path. Markets interpreted this as signaling flexible, data-driven adjustments—not entry into a sustained series of rate hikes. ECB President Christine Lagarde stated her confidence in inflation returning to target during her subsequent press conference—but emphasized that policy effectiveness still requires time and empirical validation. Every future decision will be grounded in current data, ensuring sufficient responsiveness to evolving economic conditions. Nonetheless, hawkish voices within the ECB’s Governing Council remain vocal. Council member Martina K. M. Simkus indicated she does not rule out action at any meeting and identified December as a key juncture for assessing the situation. Council member Konstantinos E. Kazakis noted that a narrowing output gap may strengthen wage-price transmission, raising the likelihood of further tightening. Council member Adam Glapiński warned that natural gas, electricity, and food prices are emerging as new critical risk factors—and actual inflation could exceed even the ECB’s recently revised upward forecasts. ING therefore expects the ECB to raise rates by 25 basis points again in December. On the outlook, Liu Ying likewise judges a December rate hike possible—but stresses that overall room for further hikes is limited. “There is relatively little scope for consecutive, large-scale rate hikes,” she said. In her view, the ECB must strike a delicate balance between fighting inflation and supporting growth—yet the current economic environment cannot sustain prolonged, aggressive monetary tightening.

Report: ECB officials lean toward a December rate hike, with inflation outlook as the key variable.

If inflation fails to improve, the European Central Bank (ECB) will resume rate hikes in December—a signal now fueling steadily rising market expectations of another monetary tightening before year-end. According to Bloomberg, citing anonymous sources familiar with internal ECB discussions, ECB officials broadly agree that, given current data and the economic impact of the Middle East war, an additional 25-basis-point rate hike may be necessary to curb inflation. The sources requested anonymity, citing the confidential nature of internal deliberations. Markets have already priced in this possibility: current trading implies an approximately 85% probability of another 25-basis-point hike in December, with investors anticipating the tightening cycle extending into 2027—and at least one further move likely thereafter. Holding rates steady this week—but with the direction of hikes 'clear' The ECB kept its deposit facility rate unchanged at 2.5% this week—the third such decision since the outbreak of the Iran–Israel conflict triggered energy-market turmoil and sent inflation soaring to nearly double the ECB’s 2% target. ECB President Christine Lagarde announced her upcoming resignation—an announcement that somewhat overshadowed the monetary policy decision itself. Nevertheless, she clearly affirmed that the “direction of interest rates is unmistakable.” Lagarde revealed that a rate hike was indeed discussed during this week’s meeting before officials ultimately opted to hold rates steady. According to anonymous sources, internal deliberations this week were “extremely intense.” The current 2.5% deposit rate sits at the upper end of the range where monetary policy is considered neutral for the economy.

ECB Governors See December Rate Hike Likely Followed by Pause, Sources Say

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European Central Bank policymakers anticipate a December interest rate hike to combat energy-driven inflation, followed by a pause as rising bond yields threaten economic growth and inflation targets.

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ECB Governors See December Rate Hike Likely Followed by Pause, Sources Say

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