Deutsche Bank: ECB Reaction Not Done Yet - FJElite

The ECB raised rates by 25bp to 2.50% in September, with Lagarde calling the decision a “no-brainer.” The overall message was hawkish enough to remain consistent with another hike to a 2.75% terminal rate in December. Core inflation is still projected to be 30bp above target at the end of the forecast horizon, while the reference to inflation staying “well above target for an extended period” suggests the ECB is becoming more willing to move policy into mildly restrictive territory.

At the same time, Lagarde avoided reinforcing already-hawkish market pricing. She declined to repeat earlier comments about the market understanding the ECB’s reaction function and stressed that the Governing Council is not taking a view on the direction of policy. That keeps the ECB firmly in a data-dependent, meeting-by-meeting stance, without ruling out another hike in December.