ECB governors see December hike likely followed by pause, sources say

ECB Governors Signal December Interest Rate Hike Before Likely Pause

ECB Policy Outlook and Interest Rate Decisions

Expectations for December Rate Hike

FRANKFURT, Oct 29 (Reuters) - European Central Bank policymakers expect to increase interest rates in December to fight high, energy-led inflation and then pause as a rise in bond yields is set to weigh on growth and inflation, three sources told Reuters.

Recent ECB Meeting and President Lagarde's Comments

The ECB left interest rates unchanged in a well-telegraphed move on Thursday and President Christine Lagarde hinted at another hike in December with a warning that high and rising energy costs were fuelling inflation risks.

Policymakers' Views on Future Actions

Three policymakers who spoke to Reuters after the meeting said a hike on December 17, which would take the ECB's deposit rate to 2.75%, was all but certain, barring a sudden collapse in energy prices.

Impact of Bond Yields on Growth and Inflation

But they expected to hit the pause button thereafter, after ECB estimates circulated before Thursday's meeting showed that the recent increase in bond yields would lower economic growth by a cumulated 100 basis points and inflation by 90 basis points in 2027-28 compared to the September baseline projection.

Official Response

An ECB spokesperson declined to comment.

Reporting Credits

(Reporting by Francesco Canepa;Editing by Alison Williams)