Deutsche Bank now expects ECB to hike rates twice more in 2026

Deutsche Bank ↗ 7.93% now expects the European Central Bank to raise interest rates twice more this year, lifting the deposit facility rate to 2.75% by December, as persistent energy costs and geopolitical tensions keep inflation pressures elevated across the euro zone.

The bank's research division outlined the revised forecast in a note published Friday, moving away from its earlier projection that rates would peak at 2.5%, Reuters reported. Deutsche Bank expects a 25 basis point hike at the ECB's September 10 meeting, followed by another 25 basis point increase in December.reuters

Energy Risks Challenge Earlier Assumptions

The previous forecast had been built on expectations that the energy price shock would prove temporary and that economic growth would weaken enough to ease inflation on its own. Both assumptions are now being tested.devdiscourse+1

A prolonged conflict involving Iran could create further upside risks to inflation, the bank noted, though euro zone labor market conditions remain relatively soft and there is limited evidence of broader price pressures feeding into wage growth. Deutsche Bank also nudged up its 2027 inflation forecast to 2.7% from 2.5%, citing the slow pass-through of energy costs into shipping, food, and other sectors.reuters+1

A Range of Outcomes

While 2.75% is now the bank's base case for the terminal rate, it laid out scenarios in either direction. Rates could still peak at 2.5% if geopolitical tensions ease more quickly than expected or growth slows materially. A move above 3%, however, would require broader evidence of persistent inflationary pressures that is not yet visible.thedarksideoftheboom.substack+1

Growing Consensus on Further Tightening

The revised outlook places Deutsche Bank among a growing number of brokerages expecting additional ECB tightening this year, reflecting a broader market view that borrowing costs in the euro zone will remain elevated for longer as economic resilience holds up. The ECB is scheduled to announce its next monetary policy decision on Thursday, September 10, with markets widely expecting a rate increase at the meeting.economictimes.indiatimes+1