ECB Hikes Rates Again, Flags Inflation Risks from Middle East Tensions

The European Central Bank has raised its key interest rates by 25 basis points to combat inflation. The main refinancing rate is now at 2.65%, while the deposit facility rate stands at 2.50%. This decision marks the ECB's second hike of 2026, and it signals that Frankfurt is not done fighting inflation yet.

The trigger for this move is the ongoing conflict in the Middle East, which has pushed euro area headline inflation to 3.3% in August, nearly two-thirds above the ECB's 2% target. The bank has revised its inflation forecast upward, projecting prices at 2.5% in 2027 and 2.1% in 2028.

The ECB also revised its GDP growth forecast upward to 0.9%, citing resilience in euro area activity that has surprised forecasters. However, the bank's statement reiterated that future rate decisions will depend entirely on incoming data, with no pre-committed path for rate increases or cuts.