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Europe thought the inflation fight was nearing its final rounds, but expensive energy has changed the script again. The ECB raised its deposit rate to 2.5% and warned that inflation could remain above target for longer, leaving markets increasingly convinced that another hike is coming.
The European Central Bank raised all three of its key interest rates by 25 basis points, taking the deposit rate from 2.25% to 2.5%, the main refinancing rate to 2.65% and the marginal lending rate to 2.9%. It was the ECB's second rate increase of 2026 following another quarter-point move in June.
The reason is increasingly familiar: energy prices are rising again as conflict across the Middle East disrupts oil and shipping markets, pushing inflation further above the ECB's 2% target. The central bank now expects headline inflation to average 3% in 2026, 2.5% in 2027 and 2.1% in 2028, while underlying inflation is also expected to remain above target throughout the forecast period.
