European Central Bank: Quarterly hikes still baseline – Nordea

Nordea’s team sees the European Central Bank delivering two more 25bp rate hikes, in December and March 2027, despite more aggressive market pricing. They note higher energy costs and Middle East risks but still view a gradual, quarterly hiking path as consistent with current data and ECB communication, while acknowledging upside risks towards faster tightening.

Gradual but upward ECB rate path

"Financial market pricing has increased rapidly lately and has already risen considerably above our own baseline forecast of two further 25bp rate hikes from the ECB, one in December and the other in March 2027. Rapidly climbing energy prices have been a big driver of rate expectations, and uncertainty over what will happen in the Middle East in the coming months remains elevated."

"That said, we continue to think that our forecast constitutes a reasonable baseline for the ECB, as it remains closely aligned with both recent developments in economic data and the signals coming from the central bank itself."

"So while the central bank does not want to commit to any particular rate path, most paths still point upwards. However, there was no urgency in the communication and really nothing that would suggest a faster pace of rate hikes than the quarterly pace the ECB has now assumed."

"We do expect to see broader price pressures emerge gradually, as well as some second-round effects, but the picture so far remains consistent with a gradual rise in interest rates."

"Given the renewed escalation of the war in the Middle East and another notable increase in gas prices in particular, risks to our baseline have tilted towards faster rate hikes, including a move as early as the next meeting in October."