ECB Hikes Interest Rates Again Amid Ongoing Iran Conflict

The European Central Bank (ECB) has raised interest rates for the second time in 2026 to combat inflation, which has risen above 3% due to higher energy costs from the ongoing Iran war.

Surging oil and natural gas prices have pushed inflation beyond the ECB's 2% target across the 21-country euro zone in August. The ECB has lifted its 2026 economic growth projection to 0.9% from 0.8% seen in June, while expecting inflation to average 3.0% this year and 2.5% in 2027.

The rate hike raises the ECB's benchmark deposit rate to 2.5%, considered the upper end of the 'neutral' range that neither restricts nor stimulates economic growth. The move is seen as a cautious approach, given a mixed outlook with high energy costs and ongoing conflict risks persisting inflation pressures.