ECB Hints at Limited Rate Hike in December Amid Energy Price Fears

Rabobank strategists Bas van Heuvelen and Erwin de Groot predict a limited rate hike in December to combat high energy prices, which they believe will have a more significant impact on inflation than economic activity. The strategists note that the current energy shock affects inflation faster and more severely, while real economic activity is less affected.

The ECB's September monetary policy decision kept the deposit facility rate at 2.50%, with the main refinancing rate at 2.65% and the marginal lending facility rate at 2.90%. The final reading for the Eurozone's August Harmonized Index of Consumer Prices (HICP) came in at 3.2%, lower than the initial estimate, but energy inflation rose 14.3% year-on-year.

Van Heuvelen and De Groot raised their energy price assumptions and incorporated an additional 25 basis point rate hike by the ECB in December, which would push the deposit facility rate to 2.75%. They clarified that this does not signal a shift towards more aggressive tightening.