ECB Set to Raise Rates Amid Energy Price Shock

The European Central Bank (ECB) is expected to raise its deposit facility rate by 25 basis points to 2.5% next Thursday, marking its second rate increase of 2026. This decision comes as energy prices continue to rise due to the ongoing US-Iran conflict and its impact on global markets.

As a result, Greek households and businesses are facing increased borrowing costs due to rising Euribor rates. The one-month and three-month Euribor rates have already risen in recent weeks, with the three-month rate standing at around 2.65% as of mid-week. This marks an increase from 2.46% at the beginning of August and 2.31% at the start of July.

ECB Executive Board member Isabel Schnabel warned that inflation could remain above the ECB's 2% target for an extended period, citing the impact of the dispute over the Strait of Hormuz on energy prices as well as stronger-than-expected economic performance. The latest Eurostat figures showed that eurozone inflation rose to 3.3% in August, up from 2.9% in July.

ECB officials are increasingly concerned that higher energy costs could feed through into prices for a wider range of goods and services unless interest rates rise. Joachim Nagel, president of Germany's central bank, pointed to a likely rate increase next Thursday, suggesting that investors have a good understanding of how the ECB is likely to respond at this stage.