ECB raises deposit rate to 2.50% as Middle East crisis drives energy costs higher

Benchmark rates rise across the euro area

The European Central Bank raised its three benchmark interest rates by 25 basis points on 10 September 2026, marking its second rate increase of the year following an initial adjustment in June. Meeting in Berlin for its annual session outside Frankfurt, the Governing Council set the deposit facility rate to 2.50%, the main refinancing operations rate to 2.65%, and the marginal lending facility rate to 2.90%. These new levels take effect on 16 September 2026. The move follows an earlier hike in June 2026, when policymakers lifted the deposit rate from 2.00% to 2.25% to contain mounting consumer price pressures.

Geopolitics and energy market disruption

Policymakers pointed directly to the ongoing conflict in the Middle East and shipping disruptions in the Strait of Hormuz as primary drivers of inflation. Maritime restrictions and attacks on vessels in the Gulf pushed Brent crude oil prices above $105 per barrel, an increase of more than 4% on the day of the announcement and over 15% since early August. Natural gas prices also increased, adding further pressure on household heating and industrial energy costs across Europe. Eurozone annual inflation climbed to 3.3% in August 2026, up from 2.9% in July and well above the 1.7% level recorded at the start of the year. Energy inflation reached 14.3% in August compared to 10.3% in July, while core inflation excluding energy and food edged down from 2.5% to 2.4%.

Updated projections and policy stance

Alongside the rate decision, the central bank updated its staff macroeconomic baseline projections for the euro area through 2028. Baseline headline inflation is projected to average 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028, with the 2027 projection revised upward from 2.3% in June. Core inflation is forecast at 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028. Real gross domestic product growth was revised upward to 0.9% in 2026 and 1.4% in 2027, followed by 1.5% in 2028, supported by resilient private consumption and public expenditure. Speaking at the post-decision press conference, ECB President Christine Lagarde emphasized that the institution remains strictly data-dependent.

We do not pre-commit to a specific rate path.

Lagarde also addressed the broader risks associated with the energy price shock and future inflation persistence.

The energy shock could worsen further, and its impact on other prices and on wages could be more significant than currently anticipated.

Market expectations and regional spillover

Financial markets responded to the policy statement by pricing in an additional 60 basis points of rate increases through April 2027. Government bond yields rose across European markets as investors absorbed the warning that inflation will remain above the 2.0% target for an extended period. The rate decision also affects non-euro European Union economies where commercial loans are denominated in euros. Romanian financial analysts noted that while domestic leu interest rates depend on local benchmarks set by the National Bank of Romania, euro-denominated borrowing costs will rise through EURIBOR. Silviu Gresoi noted that higher euro yields may place pressure on the Romanian leu and constrain local monetary policy, while Raul Putilean stated that domestic borrowing benchmarks remain governed independently by domestic conditions.