ECB Hikes Rates Again Amid Rising Energy Prices and Inflation Concerns

The European Central Bank (ECB) has raised interest rates by 25 basis points for the second time this year, following a meeting in Berlin. The key interest rate on the deposit facility will now be at 2.5 percent, while the main refinancing operations and marginal lending facility will increase to 2.65 percent and 2.9 percent respectively.

The ECB has also revised its inflation projections for 2027 and 2028, with headline inflation expected to average 3 percent in 2026, 2.5 percent in 2027, and 2.1 percent in 2028. This is an increase from previous projections.

According to the ECB, the resurgent inflation in the euro area has put the central bank on high alert, with energy prices soaring by 14.3 percent in August compared to last year. The conflict in the Middle East continues to generate inflation pressures, and inflation is expected to remain well above target for an extended period.

Despite the uncertainty surrounding future rate hikes, the ECB remains ready to adjust its instruments within its mandate to ensure that inflation stabilizes sustainably at its medium-term target of 2 percent.