ECB Interest Rate Prep

On Thursday the 18th of December at 08:15 ET, the ECB is set to release the results of their latest monetary policy meeting.
Here are some views on what to expect.

General Expectations
Expectation from Analysts and Market Participants forecast the ECB to keep the interest rate unchanged at 2.15% and the deposit rate unchanged at 2%.

Investment Bank Opinions
Wells Fargo
Next week’s active central bank calendar will also include the European Central Bank’s (ECB) latest monetary policy announcement, where we expect the Deposit Rate to remain on hold at 2.00%. Supporting the case for a steady rate are the recent data from the Eurozone. Overall, economic growth has held up moderately well despite ongoing global uncertainty. Q3 GDP grew 0.3% quarter-over-quarter and 1.4% year-over-year, while PMI surveys have remained firm, rising steadily since May, with November’s composite PMI at 52.8. Inflation dynamics also reinforce the ECB’s cautious stance. Headline CPI rose to 2.2% year-over-year in November, and services inflation climbed for the fourth consecutive month to 3.5%—its highest level since April—highlighting persistent price pressures. Given this backdrop, combined with the ECB’s repeated assertion that policy is in a “good place,” we expect the Deposit Rate to remain unchanged not only at next week’s meeting but also throughout 2026. This meeting will also include updated macroeconomic projections, which we will monitor closely for signals on the growth and inflation outlook.

Morningstar
Money markets are also pricing in largely unchanged rates for next week, but October 2026 implied rates are above the current level—a significant shift compared with just over a week ago when swap markets anticipated lower rates within the next year. ECB executive board member Isabel Schnabel told Bloomberg in an interview on Dec. 8 that eurozone growth risks “are clearly tilted to the upside” and that “risks to inflation are tilted to the upside.” She said that services inflation and wage growth have been stronger than anticipated, and demographic labor pressures and rising inflation expectations are emerging just as the economy strengthens and fiscal policy turns expansionary. With the ECB’s mandate to maintain price stability at 2% inflation, higher inflation could justify higher rates, not cuts, economists say.

Ulrike Kastens, economist at DWS, said that after Schnabel’s interview, speculation has grown that the next move could be a rate hike: “Against this backdrop, ECB president Christine Lagarde is likely to keep all options open, also pointing out that the ECB is not committing to a monetary policy course in advance.” “In fact, the new inflation projections and the expected slowdown in wage growth are likely to confirm our expectation that the deposit rate should remain unchanged at 2.0% in 2026,” she said. Michael Field, Morningstar’s chief European market strategist, said that inflation is still set to undershoot in 2026 and growth will remain weak overall: “Then there is nothing holding the ECB back from further rate cuts.”And ING’s Brzeski does not expect an interest rate hike.“Looking beyond next week, we don’t think that Schnabel’s comments currently reflect the ECB’s majority view. With expected sub-2% inflation forecasts for the next three years, we see any following ECB rate change as a cut, not a hike, at least through late spring next year,” he said. “After that, the window for rate cuts will likely close, and fiscal stimulus that meets supply-side constraints could bring back inflationary pressures. But that is a 2027 story, rather than one for 2026.”

Unicredit
The ECB will most probably keep interest rates unchanged this week amid economic resilience and sticky services inflation. While the rate decision will likely be uncontroversial and unanimous, financial markets will carefully monitor changes in rhetoric that might reveal a more sanguine assessment of the growth outlook and a de facto shelving of the central bank’s easing bias. Schnabel’s interview on 8 December has had a meaningful impact on market-based interest rate expectations. Although Lagarde will probably sound more confident about the growth outlook, we seriously doubt that she will fuel expectations of a rate increase anytime soon. The central bank’s new macroeconomic projections (the December forecasting round is mainly the responsibility of the Eurosystem staff) will take centre stage on Thursday. Lagarde has already announced that the growth estimates will be stronger than they were in September, and we suspect that the inflation trajectory will be slightly higher too. The improved growth outlook will at least partly reflect the upside GDP surprise for 3Q25, as activity expanded by 0.3% qoq compared to the ECB’s expectation of a flat reading. We think that the GDP growth forecast for 2025 will be raised by 0.2pp to 1.4%, while the estimates for 2026-27 might be increased by 0.1pp each to 1.1% and 1.4%, respectively. The number for 2028, which will be published for the first time, will probably show growth at around potential, i.e. 1.3-1.4%.

An upward revision to the inflation trajectory would likely stem from a somewhat slower decline in underlying price pressure, with core inflation outcomes having exceeded the ECB’s expectations so far in 4Q25, largely due to services prices. We expect the ECB will continue to see headline inflation undershooting 2% in both 2026 and 2027, although
by a small margin and with inflation returning to target in 2028. We will carefully monitor the risk assessment surrounding the ECB’s baseline scenario for economic activity, as the higher GDP forecast would likely strengthen the hawks’ call to move towards a balanced configuration. At the October meeting, the Governing Council (GC) still regarded risks to growth as tilted to the downside, although “mitigated” compared to previous assessments. As usual, the ECB will probably refrain from outlining the balance of risks surrounding the inflation outlook and we expect Lagarde to continue to downplay the implications of slightly undershooting the price goal. As long as sub-2% inflation is mainly driven by energy and FX-related effects while economic activity remains on track, the GC will probably deem below-target inflation as temporary. However, the range of views within the GC is likely to remain wide, with hawk Schnabel seeing risks to the inflation outlook as tilted to the upside while centrist member François Villeroy de Galhau – likely joined by several doves – regards downside risks as being “at least as prominent as upside risks”.

All in all, we expect Lagarde to stick to her data-dependency mantra and remain vague about the most likely direction of the next rate move. The market will probably conclude that the easing bias is gone (although, if asked, Lagarde will likely argue that the ECB has had no bias at recent meetings), but a rate hike remains a distant prospect. We continue to forecast a prolonged period of steady rates and think that the first hike will not come before 2H27. If anything, we see the risk of a rate cut as higher than that of a rate increase over the next six months or so.