The European Central Bank's Interest Rate Decision and Market Expectations

The European Central Bank (ECB) is expected to keep interest rates unchanged at its meeting on October 29 due to rising energy costs and economic uncertainties. Having raised its three main policy rates by 25 basis points in September, the bank is anticipated to act cautiously at this meeting.

As energy costs rise in Europe, question marks regarding the growth outlook are becoming more pronounced. The possibility of growth losing momentum makes it difficult for the ECB to strike a balance between fighting inflation and supporting economic activity. Having raised its three main policy rates by 25 basis points at its September meeting, the bank is expected to remain cautious and keep interest rates unchanged at this meeting. Market expectations are shaping around the possibility that the ECB might raise interest rates in December.

While annual inflation in the Eurozone rose to 3.8% in September under the impact of the increase in energy prices, the region's economy recorded a 0.6% growth in the second quarter of the year compared to the previous quarter. The region's third-quarter growth data will be released on Friday. ING Group Chief Economist Peter Vanden Houte predicted that the ECB will not raise interest rates this month and will wait until December, while Rabobank Senior Macro Strategist Bas van Geffen noted that there is no reason to accelerate interest rate hikes. Berenberg Chief Economist Holger Schmieding stated that the most likely scenario is for the ECB to keep interest rates unchanged on October 29 and raise them once more at the December 17 meeting.