Analysts Expect a December ECB Rate Increase as Inflation Stays Above Target

The European Central Bank’s October Survey of Monetary Analysts points to an increase in the deposit rate from 2.50% to 2.75% in December 2026, followed by an extended period at that level in 2027. Economists expect euro-area inflation to approach 2% only towards the end of next year. Their forecasts imply a difficult combination of persistent price pressure and weak growth.

The survey results, published on 30 October, reflect responses from 69 analysts collected between 12 and 14 October. Respondents expect a December increase and rates to remain higher in 2027.

The survey is neither an official ECB forecast nor an announcement of future Governing Council decisions. It records economists’ expectations for interest rates, inflation, growth and European financial markets.

A December rate increase becomes the central forecast

The median deposit-rate forecast is 2.50% for October and 2.75% for December 2026. The median remains at 2.75% for subsequent meetings through September 2027 and for the fourth quarter of that year.

For December, forecasts at both the 25th and 75th percentiles put the deposit rate at 2.75%. That indicates a strong concentration around a 25-basis-point increase, although not unanimity among respondents.

Rate cuts appear in the median only in 2028. Analysts forecast 2.50% in the first half of that year and 2.25% by year-end. The median remains at 2.25% in 2029.

Source: ECB, Survey of Monetary Analysts, October 2026. Compiled by CEO.com.pl.

The probability distributions show differences in expectations over the timing of changes. For the nearest meeting, the average probability assigned to an unchanged rate is 85.6%, compared with 13.9% for a 25-basis-point increase. For the following meeting, the average probability of a 25-basis-point increase rises to 77.6%.

PKO Bank Polski also expects a December increase

Economists at PKO Bank Polski (PKO BP) maintain their forecast of a December increase. In their 30 October economic daily, “Rate increases postponed”, they note that the ECB left its deposit rate at 2.50%, although the Governing Council considered raising rates at the October meeting.

According to the bank’s account, Christine Lagarde highlighted increasing inflation risks but not stronger second-round effects, in which earlier price rises feed into subsequent prices and wages. The ECB will receive new data and an updated inflation projection before its December decision.

PKO BP expects a 25-basis-point increase in December and sees a return to cuts in late 2027 only under a favourable scenario. That would be earlier than the SMA median, which shows a decline only in 2028. The ECB survey preceded the October meeting, while PKO BP’s commentary incorporates its outcome.

PKO BP also judges that the ECB’s message was less forceful about increases than investors had expected. After the meeting, markets reduced the amount of euro-area tightening priced for 2027. That supported European bond prices.

Inflation is expected to remain elevated through much of 2027

The median forecast puts annual euro-area Harmonised Index of Consumer Prices (HICP) inflation at 3.9% in Q4 2026 and 3.7% in Q1 2027. It then falls to 3.0% in Q2, 2.5% in Q3 and 2.1% in Q4. Stabilisation at 2.0% is expected from early 2028.

Core HICP inflation, excluding energy and food, remains an important part of the outlook. Analysts expect it to rise from 2.5% in Q4 2026 to 2.7% in early 2027. Only then is it forecast to decline gradually, reaching 2.4% at the end of next year.

Median forecasts, year-on-year changes. Source: ECB, October 2026. Compiled by CEO.com.pl.

Lower headline inflation therefore need not mean an equally rapid easing of price pressure across other goods and services. Persistent core inflation could limit the scope for earlier rate cuts.

Inflation risks remain tilted upwards

For 2026, 66.7% of respondents see inflation risks as tilted upwards; for 2027, the proportion is 60.9%. The median probability assigned to annual average inflation exceeding 2% in 2027 is 75%.

Even with inflation forecast at 2.1% towards the end of 2027, most respondents therefore see a risk of higher-than-expected readings. The distribution of responses indicates continuing concern over upside surprises.

Euro-area growth is expected to remain slow

The median forecast for Q4 2026 GDP growth is 0.3% quarter on quarter. Analysts expect a similar pace across the quarters of 2027 and the following two years. The median longer-term annual growth forecast is 1.2%.

Meanwhile, 56.5% of respondents see downside risks to growth in 2027, with only 10.1% judging that upside possibilities predominate. With quarterly growth forecast at 0.3%, elevated rates increase the cost of investment and credit. Inflation pressure simultaneously limits the room to reduce them.

Analysts do not expect a sharp deterioration in the labour market. The median unemployment forecast is 6.4% at the end of 2026 and in the first half of 2027. It then falls to 6.3% in the second half of next year.

Bond yield forecasts differ across countries

The median forecast for Germany’s 10-year government bond yield in 12 months is 3.25%. The corresponding forecasts are 4.30% for France, 4.20% for Italy and 3.83% for Spain. France’s expected yield exceeds Germany’s by 105 basis points, compared with 95 points for Italy; these are forecast medians rather than current market quotes.

Eurosystem bond portfolios are expected to keep shrinking

Respondents expect further reductions in the Eurosystem’s holdings under the asset purchase programme (APP) and pandemic emergency purchase programme (PEPP). The median forecast shows the APP portfolio falling from EUR 2.214 trillion at the end of 2026 to EUR 1.921 trillion at the end of 2027. PEPP holdings decline from EUR 1.319 trillion to EUR 1.170 trillion, a combined reduction of around EUR 442 billion calculated from the differences between medians.

Data source: European Central Bank, Survey of Monetary Analysts, October 2026. Compiled by the CEO.com.pl editorial team.

Polish original published on 30 October 2026: CEO.