Comprehensive ECB Governing Council rate probability analysis and eurozone insights
European Central Bank Analysis's next policy meeting is scheduled for 10 September 2026. The current market-implied probability of 25bp hike is 77%.
The European Central Bank's Governing Council meets every six weeks to assess monetary policy stance and economic conditions. Rate change probabilities are calculated based on EUR short term interest rate curve, as far as available. Missing data points are estimated using a Joint Least-Squares Bootstrap. These probabilities are cumulative relative to today, not independent bets placed fresh at each meeting: a given meeting's hike probability is the chance the rate is higher than today's level by that meeting date, and it already includes any move priced in for earlier meetings. A higher probability at a later meeting therefore reflects the accumulation of moves priced in over time, not a series of separate coin flips — these figures should not be added, multiplied, or compared across meetings as if each one stood alone.
Based on EUR short-term interest rate futures. Shows where markets expect the ECB deposit facility rate to average at each future date, comparing today's expectations with those from 1 and 4 weeks ago.
Data as of July 28, 2026
While the empirical probabilities above show what financial markets expect (based on yield curve pricing), the theoretical rate below shows what economic models suggest the ECB should do based on current economic conditions like inflation and growth.
Comparing these helps us understand whether the market expects the ECB to follow economic theory, or if they expect the ECB to take a different path for practical reasons.
The following analysis compares market-implied rate expectations (empirical probabilities derived from EUR short term interest rates) with model-based theoretical rates calculated using the ECB's structural framework. This comparison provides insight into the market's assessment of the ECB's reaction function relative to its historical policy rule.
| Indicator | Current | Target/Neutral | Gap |
|---|---|---|---|
| Inflation | 2.72% | 2.00% | +0.72 pp |
| Output Gap | 0.56% | 0.00% | +0.56 pp |
| Unemployment | 6.70% | N/A | N/A |
We use a Taylor-rule style benchmark. Start with a neutral rate, add current inflation, then adjust for how far inflation is from target and whether the economy is running above or below potential.
In this table, inflation and the output gap are the two main direct inputs. Unemployment is shown as an additional cross-check for labour-market slack, which helps interpret the output-gap estimate rather than entering as a separate line in the simplified formula.
See the full Taylor Rule methodologyPolicy-rule mapping: the theoretical ECB rate shown above is a policy-rule estimate derived from the indicator table using a standard Taylor-rule structure. Inflation enters both in levels and as a deviation from the target, while macro slack enters through the output-gap term.
Here, $r^*$ is the neutral real rate, $\pi_t$ is current inflation, $\pi^*$ is the ECB target, and $y_t$ is the output gap. Unemployment is displayed as a diagnostic slack variable alongside the output-gap estimate. Full parameter discussion is documented on the Taylor Rule methodology page.
The theoretical rate is calculated using a Taylor Rule adapted for the eurozone. It considers:
When actual rates are below the theoretical rate, policy is considered "dovish" (supporting growth). When above, it's "hawkish" (fighting inflation).
Model: NAWM-Based Taylor Rule
Specification:
Where: $i_t^*$ = theoretical policy rate, $r^*$ = neutral real rate (~1.0% for eurozone), $\pi_t$ = current HICP inflation, $\pi^*$ = inflation target (2.0%), $\text{Gap}_t$ = output gap estimate, $\alpha$ = 0.5 (inflation response), $\beta$ = 0.5 (output response)
Note: The ECB's actual NAWM and ECB-BASE models are more sophisticated DSGE frameworks. This simplified Taylor Rule provides a comparable benchmark consistent with the ECB's reaction function literature. For full model specifications, see the European Central Bank Economic Models page.
Empirical Probabilities:
Economic Indicators:
Explore detailed specifications of NAWM, ECB-BASE, and other frameworks
View European Central Bank Economic ModelsValidation: Model outputs are continuously compared against ECB staff projections and consensus forecasts from major institutions (Bloomberg, Reuters surveys).
Explore market-implied rate expectations for other major central banks: