Deutsche Bank Expects Rate Pause from ECB in October Amid 'Tighter' Financial Conditions

03:06 AM EDT, 10/26/2026 (MT Newswires) -- Deutsche Bank Research forecasts that the European Central Bank will leave its key policy rates unchanged at 2.50% at Thursday's meeting, citing a "measured" response to energy price shock, "limited" pass-through and "tighter" financial conditions since the September rate hike. "Our baseline remains a final hike to 2.75% in December, with some risk of a further hike to 3% in 2027. Energy prices are rising above the ECB's adverse scenario, the economy remains broadly resilient and a mildly restrictive stance feels appropriate," analysts said in an ECB preview note, adding the market-implied terminal rate, which fell to 3.20% from 3.50%, continues to "feel excessive" as the central bank "sharpened its communications." For the upcoming October meeting, the research firm expects focus will be on the ECB's communications, where potentially "hawkish" rhetoric on elevated energy prices is expected to be tempered by a "more balanced" overall tone that keeps market pricing "broadly unchanged." "The key message will be the changing weights within the ECB reaction function. At the start of the energy shock, the 'inflation outlook and risks' dominated. The ECB can now orient its decision more towards 'underlying inflation'-given no evidence of indirect or second-round effects-and 'transmission': monetary policy tightened early, and higher global yields and tighter financial conditions, in part driven by France, are reinforcing the policy tightening," Deutsche Bank wrote.