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Essentials of Monetary Policy

European Central Bank: Yikes, More Hikes!

September 10, 2026
Mirza Shaheryar Baig
Foreign Exchange Strategist

According to the European Central Bank (ECB)

  • The European Central Bank hiked rates by 25 bps as expected.
  • Inflation forecasts were revised up, signaling a more persistent passthrough from energy prices.
  • We see upside risk to our expectation of one more rate hike this cycle.

Comments

The ECB held hiked rates by 25 bps as expected, acknowledging that upside risks to inflation have intensified due to the conflict in the Middle East. The accompanying forecast update raises the 2027 HICP forecast to 2.5% from 2.3%, and for 2027 to 2.1% from 2.0%. In addition, the GDP forecast was upgraded slightly for 2026 and 2027 as the central bank noted growth had been more resilient than expected. President Lagarde noted that the forecast upgrades made today’s decision to hike a “no-brainer.”

President Lagarde acknowledged that energy prices were the main threat to price stability. She echoed her earlier comments noting that the longer energy prices remain elevated, the more spillover there could be into core inflation. The ECB has previously signaled that acting early will avoid larger rate hikes in the future. However, the bank now sees itself responding to changing facts about length of the conflict and new supply bottlenecks like refining spreads.

No bond market intervention. Bond yields have increased sharply of late, particularly in France. Chair Lagarde dismissed the notion that the ECB was considering intervention in bond markets to stabilize spreads.

The ECB is prepared to hike again, especially if oil prices remain elevated. We expect one more rate hike in December but would not rule out that hike occurring earlier, at the October meeting.

2026 Schedule of Central Bank Meetings

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