Macro · Macro Rapid Response T he outlook for ECB interest rates is now becoming more co ntroversial

Key arguments

• The ECB delivered a 25bp hike across all three official rates, lifting the DFR to 2.50%, the MRO rate to 2.65% and the MLF rate to 2.90%, as widely expected.
• This is viewed as the last straightforward move: unlike 2022, policy is already at the upper end of the neutral range, so no aggressive tightening is needed to compensate for earlier delays.
• Pass-through of energy-driven price increases has so far been less than expected; evidence of a shift in that trend would be required to justify further hikes.
• The energy outlook remains highly volatile, and faster non-Middle East crude supply growth or quicker Gulf flow recovery could ease tensions.
• Barring a drastic inflation deterioration, the Governing Council is expected to wait until the 17 December 2026 projection review before seriously considering another rise, with 29 October a stopgap meeting.
• September staff projections revised inflation up for 2027 and 2028 and growth up for 2026 and 2027, with risks on the upside for inflation and on the downside for growth.
• Under ECB scenarios based on the 19 August yield curve, rates at 3% would leave inflation marginally above target in the baseline, below target in the favourable case and well above target in the adverse case.
• Intesa leaves its base case unchanged at stable official rates, runs inflation projections below the ECB's and is less concerned about second-round effects, but sees risks as entirely one-sided.

Corresponding source evidence

1. The outlook for ECB interest rates is now becoming more co ntroversial A further 25 basis point rise in the ECB’s official rates, as expected.
2. The risks are assessed as being on the upside for inflation and on the downside for growth.
3. As the projections take the 19 August yield curve as a benchmark for short -term interest rate movements, the ECB staff’s September projections suggest that , with official rates rising to 3 per cent ,inflation could end up marginally above target in the baseline scenario ,below target in the favourable scenario and well above target in the adverse scenario.