Policymakers resist a quick rate hike

Several ECB policymakers spoke on Thursday, October 8, and pointed to comforting price trends that suggest they are in no rush to raise rates again. The ECB raised interest rates twice this summer and markets are betting on two or three more moves, even though inflation is already almost twice the bank's 2% target and could still rise as expensive energy bites. Policymakers argued that the whole inflation surge came from higher energy prices and that dangerous second-round effects have been negligible. Slovenian central bank chief Primoz Dolenc told Reuters that core inflation has behaved more steadily, adding that second-round effects from energy into wages have not yet appeared. ECB chief economist Philip Lane, speaking in London, argued that fiscal support, a key factor in this year's relatively robust growth, is likely to wane in 2027, dampening both expansion and inflationary pressures.

Expectations anchored, poll points to December

Greece's Yannis Stournaras and the Netherlands' Olaf Sleijpen both said medium- and longer-term inflation expectations, which matter most to the ECB, remain well anchored around the target. Stournaras made his case at a financial conference in Istanbul, saying:

“This is good. So we should take this into account and be moderate in our monetary policy.”

The accounts of the ECB's September 9-10 policy meeting, published on Thursday, nonetheless showed that all policymakers agreed inflation risks are skewed toward even higher readings given exceptional volatility in energy and pervasive uncertainty. A Reuters poll of 73 economists points the same way: nearly all of them see the ECB on hold this month, and the vast majority anticipate a move only in December.

Schnabel's exit and the selection timetable

Isabel Schnabel will leave the ECB on January 3, 2027 to take up a post at the International Monetary Fund, and she is due to lead the IMF's money and capital markets department from January 4. Eurogroup chairman Kyriakos Pierrakakis asked the bloc's 21 countries to submit candidates by October 28. The Eurogroup will then decide at its next meeting which candidate to recommend to EU leaders, most likely at their summit in December. Germany, Spain, the Netherlands and France are all vying for powerful board seats, and Germany, France and Italy hold a de facto permanent seat, so the replacement is likely to come from one of those three countries.

Lagarde, Lane and a package deal

Philip Lane's term ends on May 31, 2027, and Christine Lagarde's mandate runs until October 31, 2027. Reuters reports that Lagarde, who has faced persistent resignation rumours, will depart by next October at the latest. In a late-September interview with the French newspaper La Croix, she said:

“I do not rule out the possibility of resigning a few months before the end of my term, but I have not announced anything concrete, and one thing is certain: in 2027 I will still be here.”

Pablo Hernandez de Cos, general manager of the Bank for International Settlements, and Klaas Knot, former head of the Dutch central bank, are seen as favourites to succeed Lagarde. Bundesbank president Joachim Nagel said every member of the ECB Council can count as a highly qualified candidate, and that strong candidates exist outside the council as well, with politics ultimately deciding. Federal Finance Minister Lars Klingbeil said Germany will keep an important and influential role within the ECB, and that personnel decisions will be made in the federal government. Because the 2027 vacancies coincide, a package solution is seen as likely, and government circles have set the EU summit in mid-December as the target for decisions. Meanwhile, speaking at a closed-door meeting of euro area finance ministers in Luxembourg, Lagarde said the ECB has the instruments to stabilise financial markets if required, when asked about sovereign spreads.