Commerzbank: ECB 25bp Hike Near-Certain This Week, Gradual Path Ahead With Rate Cuts Next Year

The Quick Take

• Commerzbank analyst Rainer Guntermann says a 25bp ECB rate hike this Thursday is near-certain and already fully priced by markets
• The bank projects a gradual ECB tightening path, with the cycle peaking before rate cuts are expected to follow next year as inflation nears the 2% target
• A fully-priced hike reduces immediate bond market volatility risk, shifting all attention to ECB guidance language about the pace of future moves

Commerzbank's Rainer Guntermann, a leading European central bank analyst, has stated that the European Central Bank's 25 basis point rate hike expected this Thursday is almost certain and has already been fully priced by financial markets, marking the first increase in the current tightening phase. Commerzbank's baseline scenario projects a gradual subsequent tightening path: controlled rate increases at a measured pace, followed by rate cuts expected next year once eurozone inflation returns sustainably toward the ECB's 2% target. The Commerzbank analysis implies a relatively predictable near-term policy trajectory for European interest rate markets, reducing the binary risk of an unexpected ECB decision.

A fully priced rate hike carries nuanced market implications compared to a surprise announcement. European bond markets have already incorporated the 25bp increase into current yield levels, meaning the actual announcement delivers minimal incremental volatility — the risk premium is already embedded in current prices. Market attention will shift immediately to ECB President Christine Lagarde's press conference language, where any signal of accelerating or decelerating the pace of subsequent hikes triggers rapid repricing across the rate curve. European bank stocks, which benefit from wider net interest margins in a rising rate environment, respond positively to a predictable tightening path. Southern European sovereign spreads remain the primary vulnerability if language turns more hawkish than Commerzbank's gradual scenario.

The ECB Thursday rate announcement and Lagarde's press conference are the pivotal near-term market events. Watch the ECB's updated staff inflation projections — upward revision to core CPI would signal a longer tightening runway than Commerzbank's baseline; a downward revision supports the rate-peak-is-near narrative and rallies duration assets. The dominant macro variable over a 6-12 month horizon is eurozone wage inflation: if German and French collective bargaining rounds lock in above-3% annual wage increases, the ECB's ability to pivot toward cuts next year is constrained regardless of its current forward guidance, forcing a longer plateau at elevated rates.

Synthesized from 1 source.