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ECB Set to Hold Rates at 2.5 Percent as French Bonds Steal the Day

Frankfurt is expected to leave its deposit rate at 2.5 percent on Thursday, signal that December is live for the next hike, and face questions about French bond yields and Christine Lagarde's future.

By Orbit Post2 min read
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ECB Set to Hold Rates at 2.5 Percent as French Bonds Steal the Day

Key points

  • The European Central Bank is expected to keep interest rates on hold on Thursday in Frankfurt, in a decision that has been well telegraphed and is likely to be overshadowed by two harder subjects:…
  • The bank is expected to leave its deposit rate at 2.5 percent.
  • The case for holding is the squeeze on both sides.

The European Central Bank is expected to keep interest rates on hold on Thursday in Frankfurt, in a decision that has been well telegraphed and is likely to be overshadowed by two harder subjects: turmoil in France's government bond market, and questions about President Christine Lagarde's own future.

The bank is expected to leave its deposit rate at 2.5 percent. It has already raised rates twice since June, including a move to 2.5 percent in September, as policymakers work to stop an oil price shock linked to the Iran conflict from feeding into other prices and wages, Reuters reported in its preview of the meeting.

Caught between inflation and bond markets

The case for holding is the squeeze on both sides. Inflation risks have tilted further up since September, Holger Schmieding, chief economist at the German bank Berenberg, said, after a further spike in oil prices. But borrowing costs for households and businesses have also risen, driven by a surge in government bond yields, above all in debt laden France. Lagarde has said that rise in yields will itself curb growth and inflation.

Money markets currently price roughly three further rate increases, which would take the deposit rate to 3.25 percent. A signal that December is a live meeting for the next hike is the main thing traders expect from Thursday's statement and press conference.

Lagarde in the spotlight

Lagarde is set to be questioned about her own tenure. Speculation has grown that she may leave before the presidential elections in her native France in the spring, despite having a year left of her term at the ECB. She has not announced any such move, and the speculation is likely to follow her into the press conference room in Frankfurt.

Why it matters beyond the euro zone

European rates set the tone for global borrowing costs on the same week the Federal Reserve held at 3.75 to 4.00 percent and the Bank of Canada raised its rate to 2.50 percent. A December hike signal from Frankfurt would confirm that the oil driven inflation round is pushing the world's major central banks the same way: toward tighter money, even where growth is cooling.

The decision is due on Thursday afternoon in Frankfurt, followed by Lagarde's press conference.

Timeline

  1. Jun 2026The ECB begins raising rates again, the first of two increases since June as the oil shock feeds inflation.
  2. Sep 2026The deposit rate reaches 2.5 percent.
  3. Oct 29, 2026The Governing Council meets in Frankfurt. A hold at 2.5 percent is expected, with the focus on France's bond yields, a possible December hike, and questions about Lagarde's future.

Sources