Geoff Yu at BNY Mellon expects the ECB to skip an October rate hike and possibly be done for the year, citing clear guidance on second‑round effects, emerging sovereign risks and French budget uncertainty. He argues that any balance‑sheet response, such as ending quantitative tightening or using the Transmission Protection Instrument, would effectively mark the end of rate‑based tightening as policy tools must not work at cross‑purposes.
Tightening cycle seen near its end
"The ECB will skip October and could be done for the year. The ECB remains vigilant, but its language on second-round effects points to a skip in October."
"Given the emergence of sovereign risk and uncertainty surrounding the French budget, we see a December hold as probable unless natural gas prices move closer to the “severe” inflation scenario in the ECB’s staff projections."
"With sovereign and corporate spreads in focus, the ECB has already faced questions over activating the “Transmission Protection Instrument,” created in 2022 to counter disorderly widening in Eurozone sovereign spreads."
"We don’t see this as necessary for now; an end to quantitative tightening (QT) is the more likely step if OAT-Bund spreads begin widening again."
"But if the ECB’s balance sheet is deployed, even in the name of “transmission protection,” an end to rate-based tightening won’t be far behind, lest balance sheet support and rate hikes work against each other."
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