Deposit rate raised to 2.50 percent on persistent energy shock
Meeting in Berlin, the European Central Bank (ECB) Governing Council raised the deposit facility rate by 25 basis points to 2.50 percent. Policymakers cited persistent energy price pressures from Middle East hostilities and an upward revision to the medium-term inflation outlook.
Lane steers unanimous hike to 2.50 percent
Chief Economist Philip Lane proposed raising the key policy rates by 25 basis points, lifting the deposit facility rate from 2.25 percent to 2.50 percent, a move supported by all voting members.
The decision responded to a deteriorating inflation profile driven by the ongoing conflict in the Middle East and Russia’s war against Ukraine.
Headline HICP inflation rose to 3.3 percent in August from 2.9 percent in July, with energy inflation reaching 14.3 percent.
Fresh staff projections revised headline inflation up to 2.5 percent for 2027 and 2.1 percent for 2028, while keeping 2026 at 3.0 percent.
Economic growth was revised up to 0.9 percent in 2026 and 1.4 percent in 2027 amid resilient consumer spending.
Energy costs push market yields higher
Executive Board member Isabel Schnabel highlighted tightening financial conditions as energy markets faced renewed pressure, with European gas prices rising 17 percent to €73 per MWh and oil reaching $97 per barrel.
Markets repriced the terminal policy rate above 3.0 percent, pricing in 84 basis points of hikes by late 2027.
Corporate bank lending rates rose to 3.8 percent, while annual loan growth stood at 4.4 percent.
Long-term sovereign bond spreads remained orderly despite climbing yields, and the euro area unemployment rate held at 6.4 percent in July.
Fighting supply ghosts with rate hikes
The Governing Council is clearly spooked by an energy shock that refuses to fade.
Raising rates against supply-driven commodity pressures risks choking domestic demand just as fiscal tailwinds recede.
Without evidence of a wage-price spiral, this hike looks more like institutional defensiveness than prudent strategy.
Source: Meeting of 9-10 September 2026
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