The ECB is expected to keep rates unchanged at Thursday’s meeting, a move
largely priced in; attention is likely to shift to recent French government bond
volatility and questions over ECB President Lagarde’s future. The bank has
raised rates twice since June and policymakers are expected to restart
tightening in coming months to prevent an oil-price shock from feeding into
broader prices and wages. Surging sovereign yields have pushed up borrowing
costs for households and companies, forcing a trade-off between inflation risks
and deteriorating financing conditions. Markets mostly expect the deposit rate
to be held at 2.5% and for the ECB to signal a possible hike as early as
December. "Given energy price rises could push up the ECB's inflation forecasts,
the bar for a December move may be lower," said Oliver Rakau of Oxford
Economics.
