The news
The European Central Bank is expected to keep its deposit rate unchanged at 2.50% when policymakers announce their decision on Thursday, 29 October. The ECB has raised rates twice since June, by 25 basis points each time, on 11 June and 10 September.
The decision is due at 14:15 CET, which is 15:15 Palestine time. President Christine Lagarde's press conference follows at 14:45 CET.
Background: inflation is moving the wrong way
Euro area annual inflation rose to 3.8% in September from 3.2% in August, according to Eurostat. Core inflation edged up to 2.5% from 2.4%, and energy prices were 18.9% higher than a year earlier.
Berenberg's Holger Schmieding expects the ECB to signal that the recent spike in oil prices "has tilted the risks to inflation" further to the upside.
The numbers
- Deposit facility rate: 2.50% (in effect since 16 September)
- Main refinancing rate: 2.65%
- Marginal lending rate: 2.90%
- Market pricing: about three more 25-basis-point hikes, which would take the deposit rate to 3.25%. A December move is seen as likely.
France and leadership in focus
France is paying some of its highest bond yields in a quarter of a century. Its risk premium over Germany is the widest in the euro zone.
AXA's Gilles Moec said it is "essential" that possible ECB intervention in bond markets stays on the table. Economists at Algebris said French risk "seems to remain contained in France". They added that the ECB's Transmission Protection Instrument could be used if pressure spreads, although any intervention still looks remote.
Lagarde has one year left in her term and is likely to face questions about leaving early. MUFG's Henry Cook described the leadership uncertainty as "far from an ideal situation".
What it means for investors
A hold would leave the ECB lagging the Fed on tightening, but the guidance matters more than Thursday's decision. A clear signal toward a December hike would support the euro against the dollar. Wider French spreads would weigh on European bank stocks and could lift demand for safe-haven assets such as gold.
What to watch
Watch Lagarde's language on the December meeting, any comment on French bond spreads and the TPI, and the euro and Bund reaction after 14:15 CET.
