JPMorgan, BNP Paribas Forecast Another 25bps ECB Rate Hike in December
nashnova research
JPMorgan and BNP Paribas both raised their ECB policy-path forecasts on Thursday, now expecting another 25bp hike in December — neither had previously predicted tightening would extend that far, signaling eurozone borrowing costs will stay elevated longer.
Both banks changed their call — what exactly shifted?
JPMorgan and BNP Paribas previously expected the current hiking cycle would not extend to December. Both now forecast a 25bp increase at the December meeting.
This means → December has been reclassified from a "wait-and-see" date to a live hiking window, pushing the expected terminal rate higher.
In plain terms = the market thought rate hikes were nearly done; two major banks now say there is one more to come at year-end.
Why the revision now — what is driving it?
BNP Paribas cited persistent energy shocks and economic resilience, arguing these make "second-round effects" (the cycle where rising prices push up wages, which push prices higher again) more likely.
JPMorgan pointed to four overlapping factors: longer-lasting energy-price pressure, solid economic growth, sticky core inflation, and the ECB's own view that the neutral rate (the interest rate that neither stimulates nor restrains the economy) is shifting upward.
Oil prices have pulled back somewhat but remain above $95 a barrel; escalation in Iran has kept energy costs elevated and deepened concerns about inflation persistence.
How is the market pricing this?
LSEG data show markets have almost fully priced in a 25bp hike at the ECB's September 10 meeting, with an implied probability of 99.2%.
Traders are betting on roughly three more hikes by mid-next-year, while a Bloomberg survey shows most economists expect the deposit rate to hold at 2.5% through 2027.
This means → traders are more hawkish than economists — a clear divergence that will be tested over the coming months.
What are ECB officials saying?
Executive Board member Isabel Schnabel said it is "crucial" to contain second-round effects before they materialize.
Lithuania's central bank governor Gediminas Šimkus called the September hike "not enough"; Bulgaria's Dimitar Radev labeled both September and December as "live" meetings for potential increases.
This reflects strong hawkish sentiment inside the ECB, lending policy-level support to a December move.
What comes next?
The key test: whether the upward shift in terminal-rate expectations feeds through to the bond market — eurozone bond yields had already hit multi-year highs before pulling back recently.
In plain terms = if the market truly buys the case for several more hikes, bond prices will keep falling and yields will keep rising; that signal has not fully materialized yet.
The ECB's wording and forward guidance after next week's meeting (a 25bp hike is expected) will determine whether December expectations solidify further.
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