The European Central Bank raised interest rates by 25 basis points unanimously, a decision that Christine Lagarde described as a "no brainer" (obvious decision) at the press conference held in Berlin. The ECB president tried to show caution, stating that the enormous geopolitical uncertainty prevents the central bank from signaling about the next steps, but ended up reinforcing in the markets the expectation of a third interest rate hike by the end of the year and further monetary tightening next year.
Monetary markets now anticipate additional tightening of approximately 85 basis points by the end of 2027, an increase from less than 70 basis points before the meeting. The ECB's economic projections reveal a hawkish tilt, with inflation proving more persistent than expected: the ECB now forecasts 3% this year, 2.5% in 2027, and 2.1% in 2028, whereas previous projections pointed to 2.3% in 2027 and 2% in 2028. Economic growth was also revised upward to 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028.
Analysts from banks such as Commerzbank and Deutsche Bank expect another rate hike in December. Jörg Krämer, from Commerzbank, stated that the more restrictive tone led to a revision of the forecast for December, now expecting an additional 25 basis point increase. Mark Wall, from Deutsche Bank, emphasized that inflation risks may be increasing, although he warned that the rapid rise in gas prices could ultimately harm economic growth.
On a day when oil prices rose significantly again — Brent rose 5.8% to $107.08 and WTI nearly 6% to $101.62 — the ECB's decision added pressure to an already shaken debt market. French and Italian bonds were under particular pressure, with the spread between French and German 10-year yields reaching its highest level since 2012. In the United States, Treasury yields also rose, with 10-year rates at their highest levels in nearly three years and 30-year debt at the highest levels in over 19 years.
