ECB eyes December hike as Lagarde flags bond selloff

European Central Bank policymakers left the IMF and World Bank annual meetings in Bangkok pointing to December as the most likely month for a third interest-rate increase this year. They kept an October move on the table but said they prefer to keep raising rates once a quarter, Bloomberg reported. Waiting would put the decision at the Dec. 17 meeting, when new economic forecasts are due, according to Bloomberg's report as published by Business Standard.business-standard.com+1

The ECB raised rates by 25 basis points in June and again in September. Another increase in December would lift its policy rate to 2.75%, a level the bank considers restrictive, Reuters reported.econotimes.com

Lagarde points to bond selloff

On Saturday, President Christine Lagarde said the global bond selloff is raising borrowing costs and will slow both growth and inflation. "While growth has been resilient, financing conditions have tightened, with long-term interest rates rising notably since our last meeting," she said in her statement to the International Monetary and Financial Committee. She said the energy shock is "too large to 'look through' but a measured response remains appropriate to keep inflation in check."ecb.europa.eu

The same statement put euro-area headline inflation at 3.8% in September, driven mostly by energy, with core inflation at 2.5%. Lagarde said wages had so far shown no material response to the energy shock.

Hawks say more may be needed

Bundesbank President Joachim Nagel took a firmer line. "We are fighting against inflation, I'm of the opinion that the job is not done so far," he said at a DZ Bank event, according to Reuters. Finland's Olli Rehn said second-round effects "might creep in quietly like a cat in socks."reuters.com

On Friday, the IMF said that "at least one further 25 bps increase in policy rates in 2026 will be required" to keep core inflation contained, and that more tightening may be needed beyond that, Reuters reported.finance.yahoo.com

Lithuania's Gediminas Simkus argued for waiting: "you want to take decisions when you have the largest amount of data available, and the next such meeting is December." He added that the bank "can't ignore the fact that we have a meeting in October," according to Business Standard.business-standard.com

A murkier 2027

The talks also showed growing concern about what comes next. Rising bond yields, France's budget troubles, high energy costs and heavy spending on artificial intelligence all cloud the outlook. On Friday, Brent crude rose to $110 a barrel for the first time since May. Traders are betting on three more hikes by September 2027, Bloomberg reported.business-standard.com

"The tradeoffs for monetary policy are going to get more tricky," said Governing Council member Martins Kazaks. "So far, the decisions have been relatively easy. But there's a lot of uncertainty and very low visibility."