The European Central Bank's deposit rate is about to rise to 2.5% tonight, with a 25 basis point hike now the consensus call.
Rajat Bhattacharya said the move is better read as insurance than as the start of a new tightening cycle: rates are already close to neutral, and higher long-bond yields are doing some of the tightening for the ECB before it even acts.
"So, to wrap things up: expect the ECB to hike rates by 25 basis points tonight. However, they are highly likely to pause and take a meeting-by-meeting approach in deciding whether to tighten policy further."
Bhattacharya is a senior investment strategist at Standard Chartered Bank, writing the firm's own preview of tonight's meeting for its Money Insights podcast.
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Here are the 3 takeaways that matter.
👤 Speaker: Rajat Bhattacharya, Senior Investment Strategist at Standard Chartered Bank
📰 Published: 9 September 2026 on YouTube (Standard Chartered Wealth Insights)
🔴 YouTube | 🟢 Spotify | 🟣 Apple Podcasts | ⏱️ 5 min
Key Takeaways
A 25bps ECB hike tonight is now the consensus, taking the deposit rate to 2.5%
Resilient growth and a rebound in headline inflation are what shifted expectations
Headline inflation is an energy story — core and services inflation actually eased in August
Bhattacharya said that is evidence against second-round wage effects taking hold
He expects Christine Lagarde to frame tonight's move as an "insurance hike," not a new cycle
Markets are pricing a further 50bps of hikes to a roughly 3% terminal rate, but he says the path from here won't be linear
1. Growth, Inflation Turn Up
Second-quarter GDP expanded by an above-trend 0.4% quarter-on-quarter, and Bhattacharya said the eurozone has weathered the recent Middle East energy shock better than many feared. Growth was broad-based across Germany, France, Italy and Spain, supported by solid domestic demand.
That resilience is what gives the ECB's governing council room to lean against inflation risk, and Bhattacharya said those risks are materializing
Headline inflation rose to a three-year high in August, which he called "primarily an energy story"
Brent crude has been hovering close to $100 a barrel
Natural gas prices have nearly doubled over the past three months, to close to 80 euros per megawatt hour
European gas storage is lagging its historical average, and the lack of progress toward a Middle East resolution raises the risk of a winter gas crunch
2. Core Inflation Still Cools
While headline inflation accelerates, Bhattacharya said core and services inflation actually drifted lower in August — "a crucial detail" he said points to little evidence of second-round effects so far.
Negotiated wages slowed in the second quarter, and consumer inflation expectations have fallen for three straight months
He said slack in the eurozone labor market is slowing the pass-through from higher energy costs to broader prices, which he called "a radical change" from the inflationary surge of 2022 and 2023
3. Why Lagarde Stays Cautious
Bhattacharya does not expect ECB President Christine Lagarde to sound overly hawkish tonight, given the decline in core inflation. The ECB is facing what he called a near-term inflationary supply shock, but with rates already near neutral, he said it has to tread carefully — and higher long bond yields are already tightening financial conditions on their own.
He is calling tonight's move "an insurance hike" rather than the opening of a new tightening cycle
Beyond September, some market pricing points to a terminal rate near 3%, up from 2.5% after tonight — a further 50 basis points of hikes — but Bhattacharya said "the journey here is unlikely to be linear"
He expects Lagarde to say the ECB is "in a good place" after tonight's hike and to commit to a data-dependent, meeting-by-meeting approach
Bonus Insights
Bhattacharya put a rough window on the next decision, not just a direction. He said the "ultimate determinant of whether we see more rate hikes later this year or in early 2027 will be the duration and severity of this energy-price-driven inflation" — tying the ECB's next move to a specific stretch of time rather than leaving it open-ended
Bhattacharya's bottom line is that tonight's hike buys the ECB time rather than committing it to a cycle — how much further it goes will turn on whether the current energy shock fades or turns into a winter crunch.
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