Following the European Central Bank's (ECB) 25 basis point increase in its deposit rate to 2.5% on Thursday (September 10), two major institutions offered drastically different assessments of the ECB's future path. ANZ Bank predicts the ECB will raise rates again by 25 basis points to 2.75% in December, noting that the market has already priced in a roughly 90% probability of a rate hike in October, based primarily on the continued impact of escalating conflict in the Middle East on energy prices. ING, on the other hand, characterized Thursday's rate hike as an "insurance" measure, believing that unless energy price pressures persist or worsen, the ECB is unlikely to raise rates further.

ANZ: The market has already priced in a 90% rate hike in October, with a December rate increase to 2.75%.

ANZ Bank explicitly believes that the European Central Bank's tightening cycle is far from over. Its latest research report indicates that the market has priced in a 90% probability of a 25 basis point rate hike in October, and further projects a 25 basis point hike in December, raising the deposit facility rate from the current 2.50% to 2.75%. This assessment is directly linked to the escalating conflict in the Middle East and its upward pressure on global energy prices. ANZ emphasizes that as long as oil and gas prices remain high due to geopolitical tensions, the ECB is likely to adopt a "gradual further tightening" strategy to prevent energy shocks from creating more persistent inflationary pressures through wages and service sector prices. ANZ analysts believe that the current transmission of energy costs has not yet fully materialized, and if the conflict persists, core inflation indicators may rise again in the coming months. Therefore, ANZ views the October and December rate hikes as a necessary path to address external shocks, rather than a direct response to an overheated economy. The market's current pricing in for further rate hikes this year is clearly hawkish, reflecting a strengthening expectation among investors that the ECB will "maintain its lead over the curve." If the October meeting results in a rate hike as priced in by the market, it will further solidify the consensus that interest rates will peak higher before the end of the year, providing sustained support for the Eurozone and bond yields. ANZ's view highlights the dominant role of geopolitical risks in current policy decisions and also shows that some institutions are more convinced of the sustainability of the ECB's tightening cycle.

ING: Thursday's rate hike was an "insurance" measure; there is insufficient evidence of a second-round effect.

ING holds a more cautious and restrained view on the European Central Bank's (ECB) future policy path. The bank explicitly categorized the September 10th decision to raise interest rates by 25 basis points and increase the deposit facility rate to 2.50% as an "insurance" hike—its core purpose being to position the ECB at the forefront of the yield curve, preventing higher energy costs from being transmitted to the broader price system, rather than a response to a genuine overheating of the Eurozone economy. ING specifically pointed out that key indicators excluding energy, including core inflation, services inflation, and survey-based inflation expectations, currently show almost no "second-round effect" supporting a more aggressive tightening path. This assessment is directly based on the ECB's latest staff forecasts: overall inflation will remain at 3.0% this year, revised upwards to 2.5% and 2.1% in 2027 and 2028 respectively; core inflation is projected at 2.5%, 2.6%, and 2.3% in 2026, 2027, and 2028 respectively; and growth forecasts have been slightly revised upwards to 0.9% this year, 1.4% in 2027, and 1.5% in 2028. ING also cautioned that these forecasts do not fully account for the recent sharp rise in bond yields and the impact of oil prices breaking through key levels, therefore the future outlook remains subject to two-way changes. If the energy shock persists, the risk of upward inflation may increase; conversely, if the conflict eases or demand slows, the rate hike cycle may come to an end. ING's cautious stance contrasts sharply with the hawkish expectations of some institutions, emphasizing the importance of data-driven decision-making and avoiding excessive tightening, and providing a more balanced perspective for the market to assess the policy path before the end of the year.

Consensus and disagreement: The interest rate hike itself is undisputed; the focus is on the subsequent path.

On the nature of the decision itself, ING and ANZ agree that, given the circumstances, raising interest rates was almost "a no-brainer." ING believes that moving the policy rate to the top of what the ECB considers the neutral range carries little risk of being too aggressive or too passive, especially given that the damage to the central bank's credibility from inaction is seen as a greater risk. The two institutions disagree on what will happen next. ING believes that further rate hikes would require the ECB to conclude that the economy needs truly restrictive policy, a threshold that has not yet been crossed, especially considering current public finance concerns and high bond yields. The bank characterizes the current situation as a textbook supply-side shock rather than a demand-driven overheating problem, and therefore doubts that the ECB would risk a recession by tightening further. However, ING also acknowledges that the risk of at least one more rate hike is not negligible, noting that the ECB's own forecasts are based on market pricing that already assumes one or two more rate hikes. Both institutions agree that the final path is highly dependent on how the Middle East conflict and energy prices evolve—a variable that neither institution claims can predict with certainty.

Summarize

Following the European Central Bank's 25 basis point rate hike to 2.5% on Thursday, ANZ and ING offered differing assessments: ANZ expects another rate hike in December to 2.75%, citing rising energy prices due to the Middle East conflict and the market's 90% pricing in a October rate hike; ING, however, views the hike as a "one-off insurance," arguing that core inflation, service inflation, and inflation expectations have not shown a second-round effect, and the threshold for further rate hikes has not yet been crossed. The two institutions do not disagree on the nature of the rate hike itself; the real difference lies in its subsequent path. For the euro, positioning around the ECB's next move will depend more on the evolution of energy prices and bond yields than on the fully anticipated rate hike itself. Attention should be paid to further signals that Lagarde's speech at 15:30 Beijing time on Saturday may release.