PIMCO: ECB is heading towards a December hike

October 30, 2026

Interest Rates ECB

Konstantin Veit, Portfolio Manager at PIMCO, comments on yesterday's ECB meeting:

On today’s rates decision:

Today’s decision by the ECB to hold the deposit facility rate (DFR) at 2.5% was widely expected.
The market currently expects around three additional ECB rate hikes, for a terminal rate of 3.25%.
We believe risks are skewed towards fewer hikes but acknowledge exceptionally high uncertainty.
In our baseline we expect the ECB to hike in December, entering marginally restrictive policy territory.
The ECB’s main concern centers around higher energy prices becoming embedded in inflation.
Looking at the inflation picture today, it features higher inflation but no signs yet that it is becoming embedded.
This suggests that the ECB remains in the “middle path” for monetary policy, which continues to warrant a measured response to the surge in energy costs.
Only once the ECB judges inflation to deviate significantly and persistently from target, can its response be expected to take a more forceful turn.

On Christine Lagarde’s announcement that she will step down:

While Christine Lagarde’s decision to step down from her role early was expected, it is as yet unclear who will succeed her.
A range of possible candidates is now under consideration, including Knot and de Cos, although it’s still too early to know what the final candidate line-up will be.
Our expectation is the preference will be for a centrist candidate who reflects the inclusive and consensual leadership style shown by Lagarde.
We note the ECB’s strong focus on a framework approach, as reaffirmed at the 2025 monetary policy assessment, which tends to reduce individual influence. The reaction function is clear and unlikely to change.
Subsequently, we do not anticipate significant investment implications stemming from Lagarde’s departure.

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