Morgan Stanley Sees ECB Rate Hike Coming in December

Morgan Stanley has revised its forecast for the European Central Bank (ECB), expecting a rate hike in December 2026. The bank now predicts a 25-basis-point increase, bringing the deposit rate to 2.75%, up from its previous view of no change.

The revision follows an update to euro area growth and inflation forecasts by economists led by Jens Eisenschmidt. They noted that euro area growth has been stronger than expected, while recent oil and gas price increases will contribute to persistent inflation.

Inflation data over the next few months is expected to show the indirect effects of higher energy prices, given a six-to-nine-month lag. The ECB is likely to be concerned about these developments and may respond with another rate hike in December.