Nomura, Citi forecast two more ECB rate hikes by March

Major banks are raising their forecasts for European Central Bank interest rates after the central bank's September meeting and updated projections pointed to persistent inflation pressures driven by the ongoing Middle East conflict and surging energy prices.

Analysts at Nomura ↘ 1.20% and Citi Citigroup Inc. ↘ 1.90% now anticipate two more rate hikes — in December and March — that would take the deposit rate to 3%, according to Bloomberg. HSBC ↘ 1.29%, UBS ↘ 2.91%, and others expect at least one additional move, while some economists argue the ECB's tightening cycle is already complete.bloomberg

A Hawkish Turn in Frankfurt

The repricing follows the ECB's decision on September 10 to raise its deposit rate by 25 basis points to 2.5%, its second hike of 2026 after a June increase from 2% to 2.25%. The Governing Council said the move was necessary "because the Middle East conflict keeps driving up prices" and warned that "inflation is likely to be above our 2% target for quite a while".global.morningstar+2

ECB staff revised their inflation outlook upward, now projecting headline inflation at 3% in 2026, 2.5% in 2027, and 2.1% in 2028. Core inflation forecasts were also lifted to 2.5% in 2026 and 2.6% in 2027, reinforcing the case for further tightening.ebc+1

Energy Markets Drive the Calculus

The trajectory of oil and natural gas prices remains central to the rate outlook. Nomura's research team noted ahead of the September meeting that "a lot depends on the longevity and severity of the Iran war, and whether the price of Brent crude oil stays around $95/bbl, rises higher or falls back down". The bank flagged that sustained elevated energy costs through October could prompt the ECB to bring a December hike forward to its October 29 meeting.fxstreet

Money markets have already fully priced in an additional hike to 2.75% by year-end, up from 2.68% before the September decision, according to Bloomberg.fxstreet

A Global Tightening Wave

The ECB is not alone in confronting renewed inflation pressure. The Federal Reserve is expected to raise rates at its meeting on September 15-16, which would mark its first hike since May 2023. The probability of a Fed rate rise this month has climbed to 70%, while the likelihood of two rounds of U.S. monetary tightening in 2026 has risen to 63%. ECB board member Radev recently suggested that the neutral rate is "probably around 2.50%" and that the bank "may eventually be required to raise rates into restrictive territory" — a signal that policymakers are prepared to go further if inflation does not ease.fxstreet+2