Lagarde says data will decide December ECB rate hike

European Central Bank President Christine Lagarde said on Thursday, November 5, that economic data due over the next six weeks will determine whether the bank raises interest rates again in December. She spoke a week after the ECB held its deposit rate at 2.5% and a day after eurozone inflation hit a three-year high. "We will have many indicators between now and December that will really help us determine whether a hike is necessary," Lagarde said at a financial literacy conference in Milan, Reuters reported.reuters.com

Her cautious tone contrasted with Croatian central bank governor Ante Zigman, a member of the ECB's Governing Council. Speaking in Opatija, Croatia, he said "there's a rather big chance that interest rates rise in December," according to Bloomberg. A December move would be the ECB's third hike since the Iran war began.bloomberg.com

Energy drives inflation higher

According to Eurostat's flash estimate, eurozone inflation rose to 4% in October from 3.8% in September, double the ECB's 2% target, Morningstar reported. Energy inflation climbed to 20.8%, while core inflation held steady at 2.5%.global.morningstar.com

Lagarde, speaking at the Milan Stock Exchange, said the energy shock from the Iran war was raising diesel and jet fuel prices directly and also having indirect effects. She said inflation was "too high for our target" and "predominantly energy." She added that the spread of artificial intelligence was boosting investment demand and making the eurozone economy more resilient, which complicates the picture. It is still "necessary to apply tools to avoid inflation running away," she said, according to FXStreet.ae.marketscreener.com+2

Markets lean toward a hike

The ECB left rates unchanged on October 29 after two hikes earlier this year, the last one in September. At the time, it warned that energy prices posed upside risks to inflation. Lagarde told an Italian audience that policymakers had debated a hike at that meeting but decided they were "well positioned to wait and see" what the data showed. The heads of the German and Italian central banks are among the policymakers who have signaled that a December move may be likely.ansa.it+2

Derivatives markets price roughly an 85% chance of a quarter-point increase at the December 17 meeting. BNP Paribas expects one final hike in December as its base case, although its economists note the ECB's tone has become more balanced as financial conditions tighten. ING's Carsten Brzeski said the October inflation data "brought the central bank one step closer to a December rate hike."global.morningstar.com+1

Lagarde's final stretch

Staff economic projections due next month will help guide the decision. Lagarde has said she will step down on February 7, 2027, before her term formally ends, so the December meeting will be one of her last as president.reuters.com