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10.21.2026

Getting near peak rates

We expect the ECB to remain on hold in October. All eyes on financial conditions.

ECB’s officials have recently focused in their speeches on the role of financial conditions, arguing that their recent tightening poses additional downside risks to growth. We agree with this conclusion and, in this piece, introduce our framework for tracking financial conditions in the EA.

Tighter financing conditions, coupled with a second wave of the energy shock this summer, a fiscal impulse that will become a drag in 2027 and wider sovereign spreads that increase fragmentation in the transmission of monetary policy, suggest that we are getting very near peak rates for the ECB.

Against this backdrop, we expect the ECB to remain on hold in October. A December hike remains on the table, especially if energy prices do not drop significantly from current levels, but beyond December, we expect the ECB to remain on hold in H1 2027 and adopt an easing bias in H2 2027, with the number of rate cuts it will deliver depending on the rate of convergence of inflation towards target.

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Chiara Cremonesi 
Senior Rates Strategist 

Matteo Gallone 
Macroeconomist 


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