ECB holds rates at two point five percent

The European Central Bank kept its deposit facility rate at two point five percent on Thursday, following a twenty-five basis point increase in September.

Inflation hits three-year high

Headline inflation in the euro area reached three point eight percent last month, the highest level since September twenty twenty-three, driven by energy price inflation of eighteen point eight percent.

Lagarde: no second-round effects yet

ECB President Christine Lagarde told CNBC the central bank was not yet seeing additional second-round effects, while underlying inflation and wage growth remained broadly stable.

“At this point in time we are not seeing second round effects in addition to what is already included in the projections”

Markets price in December rate hike

Money markets priced in around a sixty-seven percent probability of a rate hike in December following the announcement, according to LSEG data.

Lagarde cites energy and financing costs

Lagarde identified higher energy costs across oil, petrol, fuel, gas and refining margins, plus a sharp rise in long-term financing costs with the average ten-year sovereign yield up around thirty-five basis points.

Governing Council chose measured approach

The Governing Council unanimously decided to hold rates, saying it was well positioned enough at this stage and that a measured approach remained appropriate given accumulated uncertainty.

“we were well positioned enough at this stage to hold and that a measured approach at this point in time remained appropriate”

Economists expect one more hike

Deutsche Bank's Mark Wall said the ECB probably needs one more hike to two point seven five percent in December while Lagarde is still president, likely ending the hiking cycle.

Focus remains on energy inflation risk

UBS economist Dean Turner said the decision should be viewed as a hawkish pause, with the ECB's focus firmly on ensuring energy-driven inflation does not become a more persistent problem.