Is the European Central Bank's policy shift imminent? Traders are betting heavily on a rate hike in 2026

【BlockBeats】On December 14th, the Financial Times published the latest analysis: European Central Bank President Lagarde recently stated that the bank’s operations are in good condition. The market generally expects the upcoming monetary policy meeting to keep the benchmark interest rate unchanged at 2%, with focus shifting to the economic forecast section.

Lagarde has signaled this week that rate setters may again raise the eurozone growth forecast at the meeting. The expectation of stronger economic growth combined with persistent inflationary pressures has significantly increased traders’ expectations of a rate hike by the European Central Bank next year in recent weeks.

However, the direction of monetary policy remains uncertain. Since the pricing adjustments in the swap market were only recently completed, traders will be especially attentive to any clues regarding the timing of rate hikes. George Moran, an economist at Royal Bank of Canada Capital Markets specializing in the eurozone, adopts a more cautious stance, believing that the European Central Bank is unlikely to raise rates in 2026—reasoning that “cyclical positives may be short-lived.” Moran further pointed out that the ECB has repeatedly emphasized that it does not want to overreact to short-term deviations from inflation targets.

It appears that any policy signal shifts will be quite restrained and cautious.