Rate increase comes after inflation in the 21-country euro area jumped to 3.3% in August
The European Central Bank raised its key interest rate to 2.5% on Thursday, aiming to stem the surge in prices triggered by the war in Iran.
The 25 basis point (0.25 percentage point) hike, which was widely anticipated by analysts and investors, came after inflation in the 21-country euro area jumped to 3.3% in August 2026, up from 2.9% in July – the highest level in three years and well above the ECB’s 2% target rate.
“The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period,” the ECB said in a statement, adding that its decision underscores its commitment to ensuring that inflation stabilises at 2% in the medium term.
The US-Israeli war on Iran and Tehran’s closure of the Strait of Hormuz, a critical energy chokepoint, has triggered a global spike in inflation and led the ECB to increase rates in June for the first time since 2023. Uncertainty about the war’s length and overall impact on prices caused the ECB’s rate-setting Governing Council to hold rates steady in July.
