ECB likely to hold rates as markets watch French bond yields and Lagarde's future
The ECB is expected to keep its 2.5% deposit rate on Thursday, but attention centres on French bond yields and whether Christine Lagarde may leave early.
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what happened
The European Central Bank is widely expected to leave rates unchanged on Thursday, Reuters reports. The decision is well signalled, but the press conference will likely be dominated by bond-market stress in France and questions about how long ECB President Christine Lagarde stays in her job. The deposit rate stands at 2.5% after two hikes since June. Analysts expect policymakers to return to tightening in the months ahead, aiming to stop an oil-driven energy price jump linked to the Iran conflict from spreading into other prices and wages.
Money markets currently price roughly three more increases, which would lift the deposit rate to 3.25%. Holger Schmieding of Berenberg argues that the latest oil spike has pushed inflation risks further to the upside. Meanwhile, rising government yields, particularly in France, are raising borrowing costs for households and companies, and Lagarde has said this will curb growth and inflation.
Lagarde may leave before France's presidential election in the spring, although she still has a year left on her term. Reuters reported earlier this month that the World Economic Forum could name her its chair as soon as November. Former central bank governors Klaas Knot of the Netherlands and Pablo Hernandez de Cos of Spain are seen as frontrunners for the ECB presidency.
why it matters
The sharpest market risk currently sits in France, where investors demand the widest premium over German Bunds in the euro zone. Any intervention still looks remote. Flexible reinvestment of maturing bonds would come first, followed by the Transmission Protection Instrument, a tool the ECB has never used. Traders will watch closely whether the bank offers verbal support for France.
market impact
Euro and French bonds: expected ECB tightening supports the currency, while the French risk premium weighs on OATs
- Euro (EUR/USD) pressure up — expected further ECB tightening supports the currency
- French government bonds (OAT) pressure down — the risk premium stays high on fiscal uncertainty
tags
instruments
sources
- ECB to hold rates as investors focus on French bonds, Lagarde's future — Reuters, 28 October 2026 at 23:00 UTC
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