ECB now less likely to raise rates above 3%
Despite the fall in Brent oil prices to $98pb this morning and AI-related sell-off in equity markets, investors still see a December 17th ECB rate hike as close to a foregone conclusion, priced in with an 80% probability. However, it is striking the ECB’s October Survey of Monetary Analysts (SMA) indicated the median expectation was for the ECB deposit rate to peak at 2.75%. This is consistent with the view expressed by several prominent investment banks that events in France, pressure on European government bond yields and broader tightening of financial market conditions will obviate the need for further ECB rate hikes in 2027. Just last week the ECB set out estimates indicating that implied market expectations from options and swaps that the deposit rate will move above 3%, are distorted upwards by the compensation investors demand for risk and the uncertain environment.
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