ECB raises deposit rate to 2.50% following inflation acceleration

Rate decision in Berlin

The European Central Bank Governing Council raised its three key interest rates by 25 basis points on 10 September 2026 during a meeting in Berlin hosted by the Deutsche Bundesbank. The unanimous decision sets the deposit facility rate at 2.50%, the main refinancing operations rate at 2.65%, and the marginal lending facility rate at 2.90%, with all changes taking effect on 16 September 2026. This adjustment is the second rate increase since the start of the conflict in the Middle East and follows an earlier hike in June. Bundesbank President Joachim Nagel opened the proceedings by stating that European unity is increasingly important and that the Governing Council demonstrates that collective European action functions effectively.

Inflation forecasts and economic growth

Eurozone consumer price inflation accelerated to 3.3% in August 2026, up from 2.9% in July, remaining above the ECB medium-term target of 2.0% for the sixth consecutive month. Updated staff projections maintained the 2026 headline inflation estimate at 3.0%, while revising projections upward to 2.5% for 2027 and 2.1% for 2028. Core inflation, which excludes volatile energy and food components, is projected at 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028. Economic growth forecasts were revised upward to 0.9% for 2026 and 1.4% for 2027, alongside a 1.5% projection for 2028. In the labor market, the Eurozone unemployment rate held steady at 6.4% in July, alongside growing export activity in the artificial intelligence sector.

Geopolitical pressures and policy communication

Crude oil prices exceeded $100 per barrel after hostilities escalated between the United States and Iran, rising nearly 40% since the collapse of their ceasefire in early July. In her press briefing, ECB President Christine Lagarde stated that elevated oil and gas costs risk spilling over into transportation, food, and broader consumer goods. She also cited environmental factors, noting that extreme weather patterns linked to El Nino could drive food prices higher than currently projected. When addressing future monetary policy steps, Lagarde reiterated that the central bank remains data-dependent on a meeting-by-meeting basis.

The uncertainty is high and we cannot predict what the next move will be.

Lagarde dismissed questions about whether 2.50% represents the upper bound of the neutral interest rate, calling the concept theoretical.

We are not discussing and have not discussed at all potential future paths or probabilities of one or the other, because we take with complete seriousness the framework that we abide by and that we want to respect collectively.

Financial markets and borrowing costs

Financial markets adjusted rapidly following the decision and press conference. Yields on two-year German government bonds rose 14 basis points to 3.21%, reaching their highest level since 2023, while the euro traded near $1.1630 against the US dollar. Traders raised the implied probability of an October rate increase to approximately 70%, up from just above 50% earlier in the week. Analysts at Pantheon Macroeconomics projected that the deposit rate will reach 3.0% through successive rate increases in December 2026 and February 2027. Commercial lending rates also reflected the shift, as the three-month Euribor climbed to 2.626% on 9 September from 2.01% before the conflict began, while the six-month Euribor stood at 2.80%.