BoJ keeps rates on hold, says underlying inflation at 2% goal, lifts FY2027 CPI forecast
BoJ held rates at 1.25%, said underlying inflation is broadly consistent with its 2% target, and raised its FY2027 core CPI forecast to 2.6%.
Deutsche Bank predicts a final ECB rate hike in December as energy costs may sustain inflation.
The prospect of a final hike in December primarily influences the short end of the euro curve, leaving Euribor, €STR futures and yields on one-to-two year government bonds most vulnerable to repricing. Containing rate expectations might dampen volatility at the longer end, whereas short-term instruments remain responsive to every inflation release. Energy prices act as the variable that could tip the balance; additional increases in oil and gas costs would reinforce the argument for tighter policy and potentially lift the euro. The upcoming leadership transition introduces a policy risk premium into 2027, which could pressure the single currency should the succession process turn politically contentious.
Earlier reports:
According to Deutsche Bank, the ECB still has one rate increase remaining, and the upcoming personnel changes are less significant than the trajectory of energy costs.
Summary of key points:
Deutsche Bank forecasts a final ECB interest rate increase in December. The bank contends that the tightening already carried out may fail to control inflation if energy costs continue to increase.
This assessment comes after Thursday's ECB meeting, where officials kept all three key rates unchanged, with the deposit rate staying at 2.5%. Deutsche Bank had anticipated this pause, characterizing it as a calibrated answer to the energy price shock. Following the decision, the euro and euro area bond yields declined.
Mark Wall, Deutsche Bank Research's chief European economist, stated that the rate increases implemented thus far are probably inadequate by themselves if energy costs keep transmitting into consumer prices, even when combined with the financial tightening observed since September. Consequently, the bank continues to anticipate a final increase in December, which it views as the probable conclusion of the ongoing tightening cycle.
Wall also recognized that predicting the ECB's course has grown harder, partly due to a series of leadership transitions at the central bank. President Christine Lagarde is stepping down in February, about nine months before her eight-year term was scheduled to conclude in October 2027. She becomes only the second ECB president to depart prematurely. Executive board member Isabel Schnabel is also leaving a year early, in January, to assume a senior position at the International Monetary Fund. Chief economist Philip Lane's mandate ends in May.
The contest to replace Lagarde has already begun. The Netherlands is endorsing former Dutch central bank chief Klaas Knot, while Spain is supporting Pablo Hernández de Cos, the Bank for International Settlements' general manager and a former Bank of Spain governor.
Wall questioned if the leadership shifts would change policy-making. He contended that the ECB as an institution is larger than any individual president and that a new leader does not automatically imply a different interest rate trajectory.
If Deutsche Bank's forecast proves accurate, the December increase would cap short-term rate expectations and redirect the discussion from the peak rate level to how long rates remain elevated. The tone of the new leadership in 2027 would then become the central focus for markets.
Share to
Disclaimer: this article comes from third-party media and is provided for reference only. It does not constitute investment advice. Crypto and other financial products carry significant price volatility risk, so please make your own decisions carefully.
BoJ held rates at 1.25%, said underlying inflation is broadly consistent with its 2% target, and raised its FY2027 core CPI forecast to 2.6%.
Bank of Japan decision imminent; rate hold at 1.25% widely expected, with focus on December hike signals.
Treasuries rallied as selling in AI stocks drove safe-haven demand, pushing the 10-year yield to about 4.90% and weighing on the dollar.
Japan factory output surged 2.2% in September, surpassing forecasts. Retail sales fell 0.7%, missing targets, leaving the Bank of Japan with mixed signals.