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Latest data show that the Eurozone's Main Refinancing Operations (MRO) rate for the fourth quarter of 2026 (October) came in at 2.65%, unchanged from the previous value of 2.65% in September, halting the prior pace of rate hikes. This decision also kept the deposit facility rate and the marginal lending facility rate unchanged at 2.50% and 2.90% respectively, fully aligning with market consensus expectations. This reflects that in an environment of slowing economic momentum and frequent inflation noises, the European Central Bank's (ECB) monetary policy is pivoting toward a "data-dependent, meeting-by-meeting assessment" wait-and-see stance.
Observing the key details, the Eurozone's inflation structure shows an obvious unevenness. Driven by escalating geopolitical conflicts in the Middle East, the headline Consumer Price Index (CPI) annual growth rate surged to 3.8% in September, with energy inflation skyrocketing by 18.9%, becoming the primary driver of the price rebound. However, core inflation, excluding energy and food, remained relatively stable at 2.5%, and wage growth in the labor market currently shows no significant signs of triggering a "second-round effect." Meanwhile, tightening financing conditions have already suppressed real demand, and the market expects third-quarter economic growth to slow to 0.2%.
Delving into the attribution for this decision, the core lies in preventing the dual risks of a hard economic landing and imported inflation. Morningstar and market analyses point out that the recent fiscal and political turmoil in France has caused the 10-year government bond yield to spike above 5.1% to hit a new high, significantly pushing up borrowing costs within the bloc. This market-driven tightening of financing conditions has partially substituted the effect of central bank rate hikes; simultaneously, President Christine Lagarde emphasized that the energy shock is bringing a double bind of upside inflation risks and downside economic risks, making standing pat the most prudent defensive strategy at this stage.
Looking ahead, market focus in the short term (1-2 months) will be highly locked on the December interest rate decision; if crude oil and natural gas supplies from the Middle East continue to be disrupted, further driving up the CPI, the risk of another rate hike before year-end is not entirely ruled out. From a medium-term (3-6 months) perspective, since the ECB's latest forecast has revised upward the 2027 inflation expectations, the probability of an early rate cut is extremely slim. Furthermore, Lagarde's unexpected announcement to step down early in February 2027 will inevitably bring the power struggle between the hawkish and dovish factions within the central bank to the surface; top-level personnel changes will add a high degree of uncertainty and volatility risk to the Eurozone's monetary policy over the next six months.
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