ECB Holds Deposit Rate at 2.50% as Lagarde Announces Departure; Sources Point to December Hike Then Pause
| Pair | Now | Since publish |
|---|---|---|
| EURUSD | — | — |
- ECB holds deposit rate at 2.50%, unanimous; Lagarde to step down next year
- Sources see December hike then pause; Deutsche Bank, UOB expect 25 bps hike
- Analysts flag energy prices, French bond turmoil, and succession as euro risks
- EUR/USD could revisit 1.1200-1.1250 if dollar downside risks build, says ING
The European Central Bank left its deposit rate unchanged at 2.50% at the October meeting, a pause after two hikes this year, including 25 bps in September. Markets had priced roughly 87% odds of a hold, and Lagarde said the Governing Council decided unanimously to stay on hold given uncertainty and unchanged underlying inflation. She said the Council discussed whether a hike was appropriate, and that it sees no risk of second-round effects beyond what is in the projections.
Lagarde described the direction of travel on rates as “quite clear” and said the six-week inter-meeting period will be information-rich, with underlying inflation likely to carry particular weight in the next decision. ING read her remarks as consistent with another hike in December despite stagflationary pressures, noting that tighter financing conditions, mainly higher bond yields, supported the pause. Lagarde said the ECB looks at the whole yield curve, not just the 10-year, and cited hyperscaler debt issuance as one factor in the yield rise.
Pre-meeting commentary flagged higher oil tied to the Middle East conflict as the main upside risk to eurozone inflation and hike pricing, and French government bonds as exposed to the yield backdrop. EUR/USD rebounded slightly from session lows after the remarks and was last down 0.15% at 1.1135. The Fed decision a day earlier sets the backdrop for the pair.
ECB President Christine Lagarde disclosed she will step down next year, according to RTTNews. The Governing Council left rates unchanged as expected: deposit rate 2.50%, main refinancing rate 2.65%, marginal lending rate 2.90%. This followed a rate increase in September. Policymakers are weighing the lagged effect of earlier moves against surging inflationary pressures, and are also assessing the impact of the recent turmoil in French bond yields. Separately, Reuters sources cited by investingLive said policymakers see a hike in December followed by a pause. New staff estimates show higher bond yields lowering growth by a cumulative 100 bps and inflation by 90 bps in 2027-28 versus baseline. Market pricing for a December hike is already largely in place.
Deutsche Bank expects the ECB to deliver one more hike in December, arguing that tighter financial conditions may not be enough on their own. It describes this as a “last hike” view. Per investingLive, the euro front end (Euribor, €STR futures, and one- to two-year government bond yields) is the most exposed to shifts in pricing. Capping rate expectations could reduce volatility further out the curve, while short-dated contracts remain sensitive to each inflation print. Energy prices are the swing factor: further gains in oil and gas would strengthen the case for tightening and could support the euro. The analysis also says uncertainty over Lagarde’s succession adds a policy risk premium into 2027, which could weigh on the euro if the succession becomes politically contested. Separately, BabyPips described the ECB’s October decision to hold at 2.50% as a “hawkish hold” based on Lagarde’s press conference.
Commerzbank (Norman Liebke) said the ECB’s pause was widely expected, but Lagarde made clear another hike in December remains possible and is largely priced in. Commerzbank said the euro’s path beyond December will depend on energy prices and on possible second-round effects on wages and inflation expectations. It added that higher bond yields already tighten financing conditions, which limits scope for an extended hiking cycle. ING (Francesco Pesole) said the ECB’s hold came with hawkish signals, as Lagarde hinted at further tightening and officials were reportedly ready to hike in December. ING said Lagarde’s departure and the choice of her successor are potential downside risks for the euro. It also sees room for EUR/USD to revisit 1.1200-1.1250 if downside risks to the US dollar build. ING noted the euro moved in a brief ‘rollercoaster’ around the decision.
Rabobank (Bas van Geffen) said Lagarde acknowledged that inflation will stay well above target, and that the ECB debated a rate hike in October before leaving policy unchanged. Rabobank reads her hints at a possible December increase, together with mixed messaging and internal estimates of the drag from higher bond yields on growth and inflation, as a sign that policymakers hope to pause after December, amid leadership changes at the ECB. UOB (Lee Sue Ann) described the October hold as a hawkish message and said Lagarde’s comments strongly suggest the ECB has not abandoned its tightening bias, while it keeps its meeting-by-meeting approach. UOB cited rising inflation risks from the energy shock, tighter financial conditions and French political uncertainty. It still expects a 25 bps hike in December, taking the deposit rate to 2.75%, followed by a period of policy stability.