Ready for a French test?: Five questions for the ECB
TLT•Markets expect the European Central Bank to hold its key rate at 2.5% in October, while economists polled expect a quarter-point hike in December. Investors are also watching energy-driven inflation, rising French borrowing costs and questions about Christine Lagarde’s succession.
1. Rate outlook
Markets widely expect the ECB to leave its key interest rate unchanged at 2.5% on Thursday, after rate increases in June and September. Economists polled expect a quarter-point hike in December; policymakers are likely to maintain a data-dependent approach as September inflation stood at 3.8%.
2. Energy and France
Core inflation rose to 2.5% last month from 2.4%, while oil is up 90% this year. Markets price in at least two rate hikes by mid-2027. French 10-year borrowing costs recently topped 5%, a 24-year high, and the premium over German 10-year bonds reached 167 basis points, up from 92 basis points at the ECB’s previous meeting.
3. Leadership questions
Lagarde is likely to face questions about succession. Former central bank governors Klaas Knot and Pablo Hernandez de Cos are seen as frontrunners; Lagarde’s term is scheduled to end next October.
