European Central Bank raises interest rates to 2.65% as Middle East conflict fuels inflation

The European Central Bank raised its three key interest rates by 25 basis points on September 10, bringing the main refinancing operations rate to 2.65% and the deposit facility rate to 2.50%. The marginal lending facility rate now sits at 2.90%, with all changes set to take effect on September 16.

This marks the ECB’s second rate hike of 2026, following a similar 25 basis point increase in June and a pause in July.

What’s driving the hike

Ongoing conflict in the Middle East has pushed energy prices higher, keeping inflation stubbornly above the ECB’s 2% target. ECB staff now project headline inflation to average 3.0% for 2026, with core inflation expected to come in at 2.5%.

The inflation outlook does improve further out. ECB projections put headline inflation at 2.5% in 2027 and 2.1% in 2028, gradually converging back toward the 2% goal.

On the growth side, GDP growth for 2026 is projected at just 0.9%.

The data-dependent playbook

The Governing Council has avoided committing to any predetermined rate path, treating each meeting as a fresh decision point based on the latest economic readings.

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