ECB Raises Rates Again as Iran War Fuels Inflation

September 10, 2026September 10, 2026

The ECB raised its deposit rate by 25 basis points to 2.50% on Thursday, its second hike since February, as the Iran war drives up inflation.

This was the central bank’s second rate increase since fighting broke out in the Middle East back in February, and it came as no surprise, most economists had already priced it in.

Along with the deposit rate, the main refinancing rate now sits at 2.65%, and the marginal lending rate at 2.9%.

In its statement, the ECB said the conflict is still generating inflation pressure and that price growth will likely stay well above its 2% target for a while longer.

It also said it isn’t locking itself into any fixed path from here, decisions will keep coming one meeting at a time based on incoming data.

Speaking to reporters after the announcement, ECB President Christine Lagarde said growth across the euro zone had been broad based, spanning countries and sectors, during the second quarter, and that the same pattern likely carried into the third quarter.

She also flagged that higher energy costs are expected to filter through to core inflation and food prices gradually, which should keep headline inflation elevated right through the first half of 2027.

The inflation numbers explain the urgency. Euro area consumer prices climbed 3.3% year on year in August, the fastest pace in almost three years.

The ECB’s updated projections see inflation averaging 3% this year, cooling to 2.5% in 2027 and 2.1% by 2028.

Growth forecasts were lifted too, the 2026 estimate now stands at 0.9%, helped by stronger than expected momentum in the second quarter. Markets barely moved on the announcement itself.

The euro held close to $1.161, down just slightly on the day, while yields on two year German bonds climbed to multi year highs near 3.07%. European shares, tracked by the STOXX 600, slipped about 0.5%.

Looking ahead, traders are now pricing in as many as three more rate hikes from the ECB by October 2027. The tightening cycle, at least for now, doesn’t look finished.

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