Standard Chartered has joined major financial institutions in forecasting a 25 basis point rate hike by the European Central Bank in December, raising its key deposit rate to 2.75% amid stronger-than-expected inflation and economic resilience.
Financial institutions are recalibrating their expectations for European monetary policy. Standard Chartered shifted its stance from a previously anticipated pause to predict a December rate increase, joining other major banks responding to accelerating price pressures across the currency union.
Standard Chartered Reverses Course as Inflation Accelerates
The brokerage altered its outlook after euro zone inflation accelerated beyond expectations in September, driven primarily by higher energy costs. At the same time, recent business activity indicators pointed to economic resilience that surprised forecasters. Economists at the firm noted that policymakers may seek insurance against the risk of higher energy prices feeding through to wages and broader price pressures. Major Wall Street banks have broadly coalesced around expectations for another ECB rate hike in December.
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We think the ECB will opt to take rates slightly into restrictive territory.
Economists, Standard Chartered
The central bank’s governing council is scheduled to meet on October 29, but analysts point to the subsequent December gathering as the more probable window for action. By December, policymakers will have access to updated economic forecasts and an additional round of inflation data, even as market signals show limited signs of persistent second-round price pressures. Money markets currently price in a roughly 65% probability of a 25 basis point move at the December meeting, according to data from LSEG.
Goldman Sachs and TD Securities Align on Mildly Restrictive Rates
Standard Chartered is not alone in its revised trajectory. Goldman Sachs Research also expects the central bank to push the deposit rate to 2.75% in December, citing the encouraging resilience of euro area economic growth. Despite an energy shock linked to geopolitical conflicts, annualized growth exceeded expectations in the first half of the year at 1.2%.
Similarly, macro researchers at TD Securities expect a final 25 basis point tightening step in December to bring the deposit rate to 2.75%, characterizing that level as mildly restrictive. Analysts there maintain a bullish year-end forecast for the euro, arguing that current market pricing overstates future tightening.
We expect the ECB to deliver a final 25bp hike in December, taking the deposit rate to 2.75%, as resilient growth and persistent inflation pressures keep policymakers focused on returning rates to mildly restrictive territory.
Macro Research team, TD Securities
Market Pricing Diverges from Long-Term Bank Forecasts
While major brokerages converge on a December adjustment, analysts remain skeptical of more aggressive market bets. Overnight index swap markets have priced in substantial cumulative tightening over the coming years, taking terminal rates toward 3.5%. Major banks view those market expectations as overstated.
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Capital Economics similarly argues that investors are pricing in excessive tightening. The research firm expects the central bank to pause after December, with rate cuts potentially returning to the agenda by the second half of 2027 and the deposit rate eventually easing toward 2% by 2028.
Neither we nor the broader consensus expect the ECB, or other major central banks, to validate the full extent of current market pricing.
Macro Research team, TD Securities
S&P Global Ratings shares a similar perspective on the medium-term horizon.
