The ECB kept its deposit rate at 2.50% and the Bank of Japan held at 1.25% in the same week. Both said inflation risks are tilted upward, and markets now lean towards rate rises at the December meetings.
Global Economy Charts Research Desk | November 1, 2026
Key indicators
| Indicator | Reading | Context |
|---|---|---|
| ECB deposit facility rate | 2.50% | Unchanged; hikes in June and September |
| Euro-area HICP inflation, September | 3.8% | Energy 18.9%; core 2.5% |
| BOJ policy rate | 1.25% | Unchanged; 8–1 vote, Takata proposed 1.5% |
| BOJ core CPI forecast, FY2027 | 2.6% | Raised from 2.4% in July |
| Market pricing of a December ECB hike | about 67% | LSEG data via CNBC |
Both central banks paused after hiking in September, and both framed the pause as time to assess incoming data rather than as the end of tightening. The reasons differ: the ECB faces an energy-price shock, while the BOJ believes underlying inflation has finally reached its 2% target.
1. The ECB paused with an energy shock in view
Headline euro-area inflation rose to 3.8% in September, driven by energy prices up 18.9% from a year earlier. Core inflation was 2.5% and the ECB said wages had not yet responded materially. President Christine Lagarde said the Governing Council debated a hike before agreeing unanimously to hold. The bank also noted that financing conditions had tightened, with average ten-year sovereign yields up about 35 basis points since September.
2. Why a supply shock complicates the response
Higher energy prices raise inflation and weaken growth at the same time. Raising rates cannot lower the oil price, but it can limit the risk that energy costs spread into wages and services prices. The ECB’s message is that it will act if second-round effects appear. December brings new staff projections, which will show how much of the energy shock the ECB expects to persist. Lagarde also confirmed she will leave after the February 2027 meeting.
3. The BOJ says the 2% target has been reached
Governor Kazuo Ueda said underlying inflation has reached levels consistent with the price target and that the bank must be vigilant to the risk of an overshoot. The board raised its fiscal 2027 core CPI forecast to 2.6% and left growth forecasts below 1%. One member, Hajime Takata, voted for an immediate rise to 1.5%. The board also agreed to accelerate sales of its ETF holdings from January 2027.
4. Holds are not the same as an end to tightening
Both banks kept their guidance meeting-by-meeting, and both said the direction of policy is upward if the data confirm their assessments. Markets priced roughly a two-in-three chance of an ECB hike in December, and most economists polled by Reuters expect the BOJ to raise rates to 1.5% at its December meeting. With the Federal Reserve also on hold, the policy gap between the major central banks is narrowing from both sides.
Scenarios to watch
If energy prices stabilise and core inflation stays near 2.5%, the ECB could hold through the winter. If October’s flash inflation estimate on 4 November shows further spillover, a December hike becomes more likely. For Japan, wage negotiations and the yen remain the key inputs. These scenarios describe policy risks, not market forecasts.
Sources and methodology
ECB monetary policy decision, 29 October 2026; ECB monetary policy statement and Q&A, 29 October 2026; Bank of Japan statement on monetary policy, 30 October 2026; Bank of Japan Outlook Report, 30 October 2026; CNBC, 29 October 2026. Reported figures are distinguished from forecasts and GEC calculations. Charts use the values and units shown; scales start at zero except where negative values or index thresholds require otherwise. Interpretive sections are GEC analysis, not company or central-bank forecasts.
Thumbnail: AI-generated editorial illustration. Figures are rounded for readability; some releases may be preliminary or subject to revision.
Leave a Reply