ECB Policy Rate Hold Seen as Five Central Banks Meet

The ECB is expected to hold its policy rate at 2.50% on Oct. 29 as five central banks meet, while the Bank of Japan signals a possible December hike.

Lead

Five central banks set interest rates within three days, and two of the decisions fall on Oct. 29 and Oct. 30. The European Central Bank is expected to leave the ECB policy rate unchanged: the deposit facility rate at 2.50%, the main refinancing rate at 2.65% and the marginal lending rate at 2.90%. The Bank of Japan is expected to hold at 1.25% on Oct. 30. It is also expected to signal that a December increase is possible, now that inflation has reached its 2% target.

The Federal Reserve, the Bank of Canada and the Reserve Bank of New Zealand announce decisions on Oct. 28, which makes this the densest central bank calendar of the autumn.

What Is the ECB Expected to Decide on Oct. 29?

The ECB is expected to hold all three key rates, with the decision due at 14:15 Frankfurt time and a press conference with President Christine Lagarde following. Market pricing implies roughly a 97% probability of no change. In a survey of 73 economists, 70 expect a hold this week, and 64 expect a further increase in December.

The pause follows a 25 basis point rise in September that took the deposit rate to 2.50%. Eurozone consumer prices rose 3.8% year on year in the September flash estimate, the fastest pace since September 2023. Higher energy costs are the main driver. The Governing Council has described a "measured response" as appropriate, since the energy shock has not yet reached wages.

France adds a second pressure point. A negative rating outlook from Moody's and rising French government bond yields reflect budget concerns. Higher yields driven by fiscal stress differ from those driven by tighter monetary policy, and the distinction matters for the euro. EUR/USD is trading between support near 1.1113 and resistance near 1.1341.

Why Is the Bank of Japan Expected to Hold but Signal a Hike?

The Bank of Japan is expected to hold because it wants more time to judge the effect of its September increase on lending conditions. That increase raised the policy rate by 25 basis points to 1.25% on a 7-2 vote. The central bank is also expected to say that price growth has reached its 2% target after nearly 14 years of effort, and to stress the risk that inflation overshoots.

The Outlook Report published with the decision is likely to carry higher inflation forecasts. Bloomberg's survey of economists shows about 83% expecting the next increase at the meeting that ends Dec. 18. Market odds of a move this week are below 5%. Tokyo consumer price data is due on Oct. 30, and wage data and the yen will shape the timing.

Higher oil prices pull in two directions. They strengthen the case for tightening through inflation, but they also worsen Japan's import bill. The dollar-yen pair is trading between support near 156.00 and resistance near 158.54.

What Does the Week Mean for the Fed and Interest Rates?

The Fed is expected to hold its target range at 3.75% to 4.00% on Oct. 28, and Chair Kevin Warsh's guidance on December is the main catalyst. The range follows a 25 basis point increase on Sept. 16. US consumer price inflation was 3.7% in September, with the core measure at 2.6%, above forecasts. Futures pricing puts the odds of a December increase near 94%.

Two US data releases follow on Oct. 29: third-quarter GDP and September personal income and outlays. The second quarter grew 2.2%, and August PCE inflation was 3.4%.

The Reserve Bank of New Zealand holds its official cash rate at 2.75% after a September increase and faces market odds of 80% to 85% for a rise to 3.00%. The Bank of Canada sits at 2.25% and weighs September inflation of 3.1% against job losses in August and September and new US tariffs.

Strategic Context

The common thread is an energy-led inflation shock meeting softer labor markets. Policymakers in the euro area, Japan and the United States have each tightened in September. Each is now holding while it judges how much of the price rise is temporary. A December cluster of increases from the Fed, the ECB and the Bank of Japan is the scenario markets are pricing. In the euro area, a hold with firm guidance would support that path. In Japan, a hawkish hold would reinforce it.

Outlook

The ECB is set to hold on Oct. 29 and the Bank of Japan on Oct. 30, with both leaving December open for further increases. The Fed's tone on Oct. 28 sets the direction for the week. Eurozone GDP and German inflation on Oct. 30 are the next checks on whether the ECB's measured approach holds.