JPMorgan, BNP Paribas forecast third ECB rate hike in December

Two of Europe's largest investment banks have broken with the broader economist consensus, predicting the European Central Bank will not stop tightening after next week's expected rate increase. JPMorgan ↘ 0.73% and BNP Paribas said on Thursday they now expect the ECB to deliver another 25-basis-point hike in December, taking the deposit facility rate to 2.75%, as persistent inflation risks and elevated energy prices strengthen the case for further action.reuters

Both banks had previously expected the ECB's tightening cycle to end without a December increase. The revised outlooks suggest borrowing costs in the eurozone will remain elevated for longer than anticipated.reuters

A Near-Certain September Hike, Then a Split

Markets have almost fully priced in a 25-basis-point hike at the ECB's September 10 meeting, with LSEG data showing a 99.2% probability. A Reuters poll found that all 65 economists surveyed expect the deposit rate to rise to 2.50% next week. But while about 91% of those economists see that as the final move through year-end, markets are pricing in nearly one additional hike beyond September, creating a gap between forecaster consensus and trader expectations.tmgm+1

JPMorgan economist Greg Fuzesi said the December call reflects "an interaction between more persistent energy price pressures, solid growth, sticky core inflation and a neutral rate that the ECB sees edging higher". He noted that ECB commentary has tracked the Middle East conflict closely, turning more hawkish when energy supply risks intensified, and that the odds of a durable de-escalation by December have "progressively receded".reuters+1

BNP Paribas struck a similar tone, writing that "the persistence of the energy shock and the resilience of the economy make second-round effects more likely to materialise".reuters

Growth and Inflation Complicate the Picture

Supporting the case for further tightening, the final eurozone composite purchasing managers' index for August came in at 52.0, pointing to steady expansion across services and manufacturing. Joe Hayes, senior principal economist at S&P Global ↗ 1.01% Market Intelligence, said the data put the eurozone "on track for a solid quarter of growth in Q3" and noted that a disinflationary trend observed since May has now stalled.sharecast

Core inflation has also proven stickier than expected, driven not only by energy but by tech prices and persistent wage growth, pressures Fuzesi said are unlikely to resolve "in a benign way" by December. He added that at least two Governing Council members have recently signaled the ECB's neutral rate estimate could be moving up toward 2.25%–2.50%, meaning only a third hike would put policy into mildly restrictive territory.investing

What Comes Next

JPMorgan now expects the policy rate to hold at 2.75% throughout 2027, with any rate cut pushed back to 2028. A fourth hike as early as March remains possible, Fuzesi said, though a Middle East de-escalation, easing gas markets after winter, and wage data nearing target-consistent levels could complicate that debate. BNP Paribas expects the ECB to leave the door "wide open" to further moves next week if evidence of second-round inflation effects continues to build.investing+1