ECB Raises Rates Again, Cites Energy Price Pressures

The European Central Bank (ECB) raised its key interest rates by 25 basis points as expected, following a two-day meeting of its Governing Council. The deposit facility rate was raised from 2.25% to 2.50%, while the main benchmark rate and the marginal lending facility were also increased.

This is the ECB's second interest rate increase this year, with the Bank having raised rates by 25 basis points each in June due to accelerating euro area inflation caused by the energy shock from the war in the Middle East.

The decision was widely expected by markets after euro area inflation accelerated to 3.3% in August, reaching its highest level in three years. Energy remains the main source of price pressures, with a new escalation of the conflict between the United States and Iran driving up oil prices and reducing expectations for a rapid normalisation of supplies through the Strait of Hormuz.

The ECB's projections suggest that headline inflation in the euro area is expected to average 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028, with core inflation revised upwards for the coming years.