ECB heads into October meeting with 2.5% rate hold and Lagarde succession questions

The European Central Bank is expected to leave its key interest rate unchanged at 2.5% at its October meeting on Thursday, Reuters reported, while the timetable for Christine Lagarde's possible early departure remains unresolved. Lagarde could be appointed chair of the World Economic Forum as early as November, although her ECB term is due to end in October next year. The meeting also comes as euro zone inflation remains above the ECB's target and French borrowing costs have risen.

ECB expected to keep rate unchanged at October meeting

Reuters anticipates the ECB to keep key rates on hold at Thursday’s October meeting of the governing council, following on from increases in June and September.

Lagarde's November possibility leaves the succession timetable open

Reuters reported that Lagarde could be appointed chair of the World Economic Forum as early as November. Her current ECB term is due to end in October next year.

Klaas Knot of the Netherlands and Pablo Hernández de Cos of Spain were considered candidates to succeed Lagarde, according to Reuters. The resignation of Executive Board member Isabel Schnabel opened another vacancy at the ECB. Chief Economist Philip Lane is scheduled to step down in May.

Inflation reached 3.8% as French bond yields crossed 5%

Inflation in the euro zone rose to 3.8% in September, above the ECB’s 2% inflation rate, according to a Reuters report. The core inflation rate, which does not include prices for food and energy, climbed to 2.5% in September from 2.4% in August.

Yield on 10-year French government bond jumps to 24-year high of more than 5% – Reuters. Spread between yield on 10-year French and German government bonds has widened to 167 bp from 92 bp in the ECB’s previous meeting. ECB is not expected to use its Transmission Protection Instrument immediately.

December rate increase enters the policy discussion

Economists polled by Reuters expected a 25-basis-point rate increase in December. The expectation reflected concern that inflation could remain elevated if energy costs continued to rise.

Reuters reported that policymakers were expected to retain a data-dependent approach without firm commitments on the timing or scale of future rate adjustments.