In brief

• The European Central Bank may raise interest rates in December, though the decision is not yet settled.
• Inflation in the euro area reached 4% in October, against a target of 2%.
• Most economists expect the December hike to be the last in the current cycle.
• Higher rates would mean more expensive corporate loans, especially those with variable interest rates.

A December hike on the table

The euro area's central bank may again decide to raise rates in December, unless incoming data change the current picture of the economy and inflation (Lane: EBC ostrożnie szykuje się ewentualnej podwyżki stóp procentowych. Decyzja nie jest przesądzona – Puls Biznesu). Lane considers such a step justified, but cautions that the decision is not yet settled.

Signals from the council reinforce this outlook. The Bundesbank president pointed to inflation risks, and markets increasingly factor a December hike into their pricing (ECB December rate hike expectations rise as Bundesbank chief flags inflation risks – yahoo.com) (ECB December rate hike expectations rise as Bundesbank chief flags inflation risks – Investing.com).

Inflation and economists' expectations

Inflation in the euro area rose in October to 4%, its highest level in three years, against a target of 2% (ECB set for last rate hike in December but inflation risks keep door open for one more: Reuters poll – Investing.com). According to a Reuters poll, most economists expect the December hike to be the last in the current cycle, although more than a third forecast another one in early 2027.

The data that will decide

The bank's decisions in 2027 are to rest on a broader set of indicators, not on a single inflation or growth reading. Resilient economic activity and the risk of further price increases mean markets are pricing in at least one hike after December.

What it means for businesses

If the bank raises rates, financing costs will rise quickly, especially for working capital, investment loans and leasing with variable rates, whose installments react to rate changes almost immediately. Companies planning investments around the turn of the year should include a scenario of higher interest rates in their budgets.

Decision timing

The bank's next possible move falls in December of this year. Decisions concerning 2027 will be made as new macroeconomic data arrive.

Read also

• EBC utrzymał stopy procentowe w strefie euro. Wysokie ceny energii podtrzymują presję inflacyjną
• EBC zostawia stopę procentową na poziomie 2,5 proc. mimo wysokiej inflacji
• Goldman przewiduje kolejną podwyżkę stóp Fed w marcu po gorących danych o inflacji