ECB Raises Rates by 25 Basis Points

The European Central Bank raised interest rates by 25 basis points at its September 2026 policy meeting, marking its second increase since the outbreak of the US-Iran conflict.

Following the decision, the main refinancing rate increased to 2.65%, while the deposit facility rate rose to 2.50%.

Energy Costs Keep Inflation Elevated

The ECB highlighted ongoing conflicts in the Middle East as an important source of inflationary pressure, particularly through higher energy costs. Policymakers expect inflation to remain above the central bank’s 2% target for some time.

The latest inflation projections also point to more persistent price pressures:

2026: Unchanged at 3.0%
2027: Raised to 2.5%
2028: Raised to 2.1%

The upward revisions for 2027 and 2028 suggest the ECB expects inflation to take longer to return toward its target.

Growth Outlook Improves

Despite higher borrowing costs and elevated energy prices, the Eurozone economy has remained more resilient than previously expected. The ECB raised its 2026 growth forecast to 0.9% and its 2027 projection to 1.4%. Growth for 2028 is still expected at 1.5%.

Markets Turn to Lagarde

Attention now shifts to comments from ECB President Christine Lagarde. Investors will be looking for signals on whether further rate hikes are likely and how concerned policymakers remain about persistent inflation.

The ECB’s guidance on the future policy path could play an important role in the near-term direction of the euro and European bond markets.

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