ECB Bumps Up Interest Rate Forecast to 3%

The European Central Bank (ECB) has raised its interest rate forecast following the September meeting where Christine Lagarde, ECB president, increased rates by 25 basis points to 2.5%. The bank's staff projections show growth at or above trend and inflation above target for an extended period into 2028.

The terminal rate is expected to reach 3% in March 2027, according to Allianz Global Investors. This revision follows the ECB's warning of upside risks to inflation during the meeting.

Lagarde described the 'neutral band' of 1.75-2.50% as 'work in progress', suggesting that policy rates could rise further while still being seen as neutral.