ECB raises deposit rate to 2.5% as Middle East conflict drives Eurozone inflation
The European Central Bank raised its benchmark deposit rate by 25 basis points to 2.5% on Thursday, responding to energy price increases caused by the conflict in the Middle East.
Unanimous rate hike in Berlin
Meeting in Berlin on Thursday, 10 September 2026, the European Central Bank Governing Council unanimously approved a 25 basis point rate increase across its three policy benchmarks. The deposit facility rate climbed from 2.25% to 2.50%, reaching its highest level since April 2025. The main refinancing operations rate increased to 2.65%, while the marginal lending facility rate rose to 2.90%.
The Governing Council decided to raise the three key ECB interest rates by 25 basis points. The conflict in the Middle East continues to generate inflationary pressures and inflation is expected to remain well above target for an extended period.
- Deposit facility
- 2.5 %
- Main refinancing operations
- 2.65 %
- Marginal lending facility
- 2.9 %
Inflationary pressures from energy markets
The rate decision follows an acceleration in headline Eurozone inflation, which climbed to 3.3% in August 2026 compared to 2.9% in July, moving further away from the bank's 2.0% target. Core inflation moderated by 0.1 percentage points to 2.1%, but energy inflation rose 14.3%. In Spain, annual consumer price growth reached 4.3%. The price increase stems from the conflict between the United States, Israel, and Iran, which started in late February 2026 and resulted in the closure of the Strait of Hormuz.
The chokepoint closure disrupted global fuel shipments, pushing Brent crude futures above $100 per barrel on Wednesday for the first time in seven months, before trading at $101.68 on Thursday. European benchmark Dutch TTF natural gas futures exceeded €80 per megawatt hour, matching three-year highs. Since the conflict began, Brent has gained over 37% (over 63% year to date), while natural gas has risen 142% (over 175% year to date).
Growth revisions and policy trajectory
Thursday's adjustment represents the second rate hike executed by the institution in 2026. The ECB previously ended an easing cycle in June 2026 with a 25 basis point increase before pausing in July. The bank upgraded its economic growth projections for 2026 and 2027, supported by Eurozone gross domestic product expanding 0.6% in the second quarter of 2026 after stagnating at 0.0% in the first quarter. However, the institution raised its inflation forecasts for 2027 and 2028 while leaving its 2026 forecast unchanged.
- Middle East conflict begins and the Strait of Hormuz is blocked
- ECB delivers first rate hike in three years, raising benchmark rates by 25 basis points
- ECB leaves interest rates unchanged at its monetary policy meeting
- Eurozone inflation climbs to 3.3% as energy prices rise 14.3%
- ECB increases policy rates by 25 basis points during its meeting in Berlin
Borrowing costs and market reaction
The policy adjustment immediately filtered into European credit benchmarks. The 12-month Euribor index, which determines financing costs for variable-rate mortgages, reached 3.138% on 10 September, maintaining its level above 3% throughout the month after averaging 2.952% in August. For an illustrative €150,000 mortgage with a 25-year term and a 1% spread, an annual rate revision represents an increase of approximately €75 per month, or €900 annually.
The market is starting to anticipate a more demanding end to the year. A Euribor at 3% is a clear sign of a cycle shift; banks will be more selective and families will have to compare much better before signing.
A Reuters survey of 65 economists had projected this rate hike to be the final move of the tightening cycle. However, financial markets and institutions including Deutsche Bank, JP Morgan, and BNP Paribas continue to weigh the possibility of another 25 basis point increase to 2.75% before year-end.
