The European Central Bank (ECB) is almost certain to raise interest rates by 25 basis points on Thursday (September 10), increasing the deposit facility rate to 2.50%. Unless there are major surprises, the rate decision itself is not the market's real interest—the bigger question is: will this be the last rate hike in this tightening cycle? With oil prices back above $100 per barrel and bond yields continuing to climb, the debate over the next path is intensifying, making ECB President Christine Lagarde's policy guidance the absolute focus.

Mainstream consensus: Lagarde will not give a clear signal

Analysts largely agree on one point: Lagarde is unlikely to explicitly commit to another rate hike. Barclays expects Lagarde to describe the September rate hike as a strong and adequate response to current inflation risks, but not as an "insurance hike"—this would leave the ECB with maximum flexibility should inflationary pressures worsen. Danske Bank holds a similar view, expecting Lagarde to reiterate a "meeting-by-meeting, data-dependent" policy approach rather than providing any specific forward guidance. JPMorgan also anticipates little explicit guidance, but believes the ECB's updated staff forecasts may effectively "speak for them." In the bank's view, these forecasts could provide stronger justification for further policy tightening. JPMorgan notes: "The ECB is unlikely to provide explicit forward guidance beyond this, adhering to a meeting-by-meeting, data-dependent approach. However, there will be a significant amount of framework guidance, as Lagarde calls it, particularly reflected in staff forecasts. This is likely to provide clear justification for further rate hikes."

Barclays and Danske Bank: 2.50% is the peak of this round.

Despite the flexible approach, this does not necessarily mean another rate hike. Barclays continues to expect the ECB to keep rates unchanged after September, with the deposit rate remaining at 2.50% until the end of 2027. However, the bank acknowledges the risk that this outlook could change due to developments in the latest energy markets – "particularly the continued rise in natural gas prices and unusually high crack spreads." This could prompt the ECB to believe that "a more restrictive policy stance may eventually be necessary." But this remains a risk, not the baseline scenario. Danske Bank believes that there is limited evidence so far of energy transmission to broader inflation categories. In the absence of these second-round effects, the bank believes there is no need for the ECB to push rates more significantly into restrictive territory. Danske Bank stated: "We believe that the lack of energy transmission to non-energy inflation means that the ECB does not need to enter restrictive territory. Therefore, we expect the ECB to maintain the deposit rate at 2.50% throughout 2026 and 2027 from September."

Deutsche Bank, JPMorgan Chase, and Societe Generale: One more rate hike is expected.

As the decision approaches, the more hawkish camp is becoming increasingly difficult to ignore. Deutsche Bank currently expects a 25 basis point rate hike in December, raising the deposit facility rate to 2.75%. However, the bank is skeptical that rates need to rise to the level currently priced in by the market. Deutsche Bank notes: "Given the lack of evidence of a second round of effects, limited evidence of indirect effects, and the overall HICP expected to return to its target level from the end of 2027, a rate of 3.00% or higher is difficult to justify. These circumstances could certainly change. The market-implied terminal rate (3.00-3.10%) reflects rising energy prices. But energy prices are unlikely to remain at current levels. Or, if they do, growth may be weaker." JPMorgan Chase has also shifted its expectation to another rate hike in December, followed by unchanged rates throughout 2027. However, the bank does not rule out the possibility of another rate hike in March next year, while currently only expecting the ECB to resume easing policy in 2028. Societe Generale also expects a 25 basis point rate hike in December, believing the ECB wants to anticipate inflation risks rather than react too slowly. However, the bank is less certain about the outlook for next year, noting that "further rate hikes in 2027 will depend on the data from the fall."

Summarize

The European Central Bank's (ECB) 25 basis point rate hike to 2.50% on Thursday is almost a certainty, but the market's real focus is on Lagarde's wording and subsequent guidance. The mainstream consensus is that Lagarde will not provide explicit forward guidance, adhering to a "meeting-by-meeting, data-dependent" approach and conveying "framework guidance" through staff forecasts. On the subsequent path, institutions are clearly divided: Barclays and Danske Bank believe 2.50% is the peak of this round, while Deutsche Bank, JPMorgan Chase, and Société Générale expect another rate hike in December to 2.75%. The market's implied terminal interest rate is 3.00-3.10%, but Deutsche Bank questions this, arguing that such a high rate is unjustified in the absence of evidence of a second-round effect. The tone of Lagarde's press conference—hawkish or dovish—will determine the short-term direction of the euro and bond markets.