European Central Bank's next week's interest rate decision imminent; markets focus on economic forecasts and future policy directions

According to analysis by the Financial Times, European Central Bank President Lagarde recently stated that banks are in a “good position,” setting the tone for next week’s monetary policy meeting. The market widely expects the European Central Bank to keep the benchmark interest rate at 2% without adjustments, focusing instead on releasing the latest economic forecast data.

Lagarde emphasized this week that policymakers may once again upgrade the eurozone’s growth outlook during the meeting. These more optimistic economic growth forecasts, combined with the still relatively high price levels, have recently led traders to increase their bets on the ECB raising interest rates next year. However, due to ongoing disagreements over the future direction of monetary policy and the fact that the swap market’s pricing mechanism only reflected this change in recent weeks, traders are particularly sensitive to the timing of policy signal shifts.

In this context, any adjustment to policy stance may be implemented gradually. RBC Capital Markets economist George Moran noted that he does not believe the ECB will initiate a rate hike cycle in 2026, citing that “cyclical positive factors may only be temporary.” He further added that the ECB has “made it clear that it does not want to overreact when the target has not yet been reached.” This stance indicates that future policy adjustments will be more cautious, and market participants need to closely monitor every subtle change in policy signals.