Financial markets are anticipating at least two more interest rate hikes from the European Central Bank (ECB), despite a recent drop in oil prices and signs of easing inflation. The ECB is expected to raise its deposit rate by a quarter-point to 2.75% at its final monetary-policy meeting of 2026, bringing rates to a neutral level that neither stimulates nor restricts economic activity.
ECB officials have already raised borrowing costs twice this year in response to higher energy prices triggered by the Middle East conflict. With inflation currently running at twice the ECB’s 2% target, Klaas Knot, a candidate to lead the ECB, emphasized that the bank’s policy remains dependent on developments in the Middle East and their impact on energy prices. He suggested that if energy prices stabilize, only modest rate adjustments may be necessary.
Another factor supporting the likelihood of further rate hikes is the euro zone’s resilient economic growth. GDP across the 21-member currency bloc rose 0.4% in the third quarter, matching earlier estimates. This growth provides the ECB with more flexibility to combat inflation through higher interest rates. However, global economic risks persist, particularly due to the ongoing Middle East tensions and bond market volatility, which could strain countries’ ability to manage their debts.