ANZ forecasts December ECB rate hike to 2.75% as tightening persists

Divergent views from ANZ and ING highlight the key question for euro rate markets today: whether the ECB is finished after Thursday's increase or will deliver at least one more before the year ends. ANZ is forecasting a December rise to 2.75% and notes that markets are already pricing in around a 90% chance of an October move, suggesting a longer tightening cycle compared with ING's perspective. ING describes Thursday's 25 basis point hike as an insurance step unlikely to be repeated unless second-round inflation materialises. For the euro, market positioning on future ECB actions will depend more on energy prices and bond yields than on the hike itself, which was fully anticipated, according to both banks. They agree that the outlook is unusually dependent on the ongoing Middle East conflict.

From ANZ's perspective, the ECB's hiking cycle will continue this year; ING, by contrast, sees the latest rate rise as a single insurance step, not the opening of a longer tightening campaign.

• According to ANZ Bank, markets are pricing in roughly 90% odds of an ECB rate increase in October, and the bank forecasts an additional 25bp hike in December, bringing the deposit rate to 2.75%.
• ANZ links that pricing to the worsening Middle East conflict and its effect on energy costs, and indicates the ECB may be leaning toward gradual additional tightening.
• ING characterises Thursday's confirmed 25bp rise, which took the deposit rate to 2.5%, as an "insurance" move designed to keep the ECB ahead of the curve rather than a reaction to widespread inflation pressures.
• ING points out that core and services inflation, as well as survey-based inflation expectations, show scant signs of second-round effects from higher energy costs.
• ING reports that the ECB's latest staff projections keep headline inflation at 3% for this year, with 2027 and 2028 forecasts raised to 2.5% and 2.1% respectively. Growth for this year was revised up slightly to 0.9%.
• ING notes that Lagarde's press conference left a "slightly hawkish aftertaste" but the bank remains doubtful that the ECB will implement more hikes unless the Middle East situation and energy costs continue or intensify.

Two research notes from major banks provide contrasting outlooks on the ECB's next steps following Thursday's decision, which raised the deposit rate by 25bp to 2.5%. ANZ sees the tightening cycle continuing, with a forecast of another 25bp hike in December to 2.75% and market pricing already reflecting roughly 90% probability of an October move. The bank directly attributes its forecast to the worsening Middle East conflict and its impact on energy prices, suggesting the ECB may keep tightening gradually as long as those conditions hold.

ING is more cautious about further tightening, though it agrees that Thursday's rise was appropriate. The bank categorises the hike as an "insurance" rate rise, aimed at staying ahead of the curve and stopping higher energy costs from spilling over into broader inflation, not a reaction to an overheating economy. ING notes that core and services inflation, along with survey-based expectations, still exhibit little evidence of second-round effects that would warrant a more aggressive stance.

That view is based on the ECB's updated staff projections, which, according to ING, hold headline inflation at 3% for this year but raise forecasts for 2027 and 2028 to 2.5% and 2.1% respectively. Core inflation estimates come in at 2.5% (2026), 2.6% (2027) and 2.3% (2028). Growth projections were revised up slightly, to 0.9% for this year and 1.4% for 2027. ING points out that these forecasts do not yet incorporate the recent rise in bond yields and oil prices, so the outlook could still change in either direction.

On the decision itself, ING and ANZ seem to concur that the hike was simple under the circumstances. ING describes it as "almost a no-brainer," stating that increasing the policy rate to the top of the ECB's neutral range involved little risk of appearing too aggressive or too passive, especially given that the bigger risk was harming credibility by doing nothing. The two differ on the future. ING argues that further rate rises would require the ECB to determine that the economy needs genuinely restrictive policy, a threshold it believes has not been met, particularly amid ongoing public finance worries and high bond yields. ING characterises the current situation as a classic supply-side shock, not a demand-driven overheating problem, and doubts the ECB would risk a recession by adding more tightening. However, ING acknowledges that the risk of at least one more increase is not small, noting that the ECB's own projections are based on market pricing that already assumes one to two additional moves. Both banks agree that the final path hinges on how the Middle East conflict and energy prices develop, a factor that neither claims to predict confidently.