ECB Preview: Hiking, Not Guiding

Danske Bank anticipates the European Central Bank (ECB) will raise its policy rates by 25 basis points at its upcoming September 10 meeting, lifting the deposit rate to 2.50%, matching market consensus and prior telegraphing from Governing Council members. Headline inflation is currently running at 3.3% with economic growth near potential, presenting a straightforward case for this immediate adjustment. However, ECB President Christine Lagarde is expected to maintain maximum policy optionality without offering explicit forward guidance for the rate path beyond September. While short-term market pricing has moved to imply a peak deposit rate approaching 3.00% by 2027 amid geopolitical tensions, Danske Bank views these terminal rate expectations as excessive. The 2.50% deposit rate represents the upper boundary of the estimated 1.75% to 2.50% neutral range, and Danske predicts the ECB will pause hikes after September as energy supply shocks account for 90% of recent inflation rather than broad demand pressures. Updated staff projections may signal upward growth revisions alongside downward revisions to core inflation.