European Central Bank: Inflation keeps three rate hikes in play - Nordea

Nordea’s Ole Håkon Eek-Nielsen and Jan von Gerich expect the European Central Bank (ECB) to deliver three additional 25bp rate hikes, taking the deposit rate to 3%. They see gradually building inflation pressures from earlier energy price rises, strained supply chains, solid Euro-area growth and low unemployment. The authors note wide risks around the rate path, driven by Middle East developments and energy-market disruptions.

ECB seen extending hiking cycle

"The ECB’s message at the July meeting was still in line with further rate hikes to come."

"We continue to expect three more 25bp increases, taking the deposit rate to 3%, but revised the expected path of these hikes last month from consecutive to quarterly moves."

"Our updated baseline assumes 25bp rate hikes in September, December and March 2027."

"A quick and durable peace in the Middle East could reduce the pressure on the ECB to hike further, while a more notable escalation and longer-lasting disruption to energy markets could lead to faster and potentially more rate increases."

"Even with a slower ECB hiking pace, we still see room especially for longer bond yields to climb, supported by ample bond supply, Eurosystem reductions in bond holdings and higher inflation-risk premia."