ECB lifts deposit rate to 2.50% as energy prices keep euro inflation high

Borrowing costs in the 21 countries that use the euro rose again on 10 September 2026, when the European Central Bank (ECB) increased its three key interest rates by a quarter of a percentage point. The bank said the conflict in the Middle East was continuing to push prices up and that inflation was “set to remain well above target for an extended period”.

The decision took the deposit facility rate, which the ECB pays banks on overnight deposits, to 2.50%. The rates on its main refinancing operations and marginal lending facility rose to 2.65% and 2.90%. All three changes took effect on 16 September.

It was the ECB’s second increase of the year. The bank’s published rate history shows that the deposit rate had been 2.00% from June 2025 until a first rise in June 2026. In July the Governing Council left rates unchanged, saying the full inflationary impact of the energy shock had “yet to play out”. The Italian daily Il Foglio reported that the June move had been the first increase since September 2023.

Energy at the centre

Christine Lagarde, the ECB’s president, set out the reasoning at a press conference. Euro area inflation rose to 3.3% in August from 2.9% in July, she said, with energy prices up 14.3% on the year. She attributed the jump in particular to refining margins on liquid fuels and to higher energy commodity prices.

Beneath the headline figure the picture was calmer. Inflation excluding energy and food edged down to 2.4%, services inflation fell to 3.0% from 3.3%, and food prices were rising by 1.2%. Wages, Lagarde said, “do not show a material response to the energy shock at this stage”: pay per employee grew 3.3% in the second quarter, down from 3.5%.

The concern was what might follow. “The longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects,” the statement said, using the economists’ term for higher costs feeding into wages and other prices. It warned that gas prices could rise further if supplies were disrupted again or if an unusually cold winter coincided with low storage levels, and cited both the Middle East conflict and Russia’s war against Ukraine.

New forecasts

ECB staff projections published with the decision put average inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. The figure for 2026 was unchanged from June, but those for the two later years were revised up. Lagarde said headline inflation was likely to stay well above target into the first half of 2027 and to return to around 2% towards the end of that year.

The growth outlook improved. The staff baseline foresees the economy expanding by 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028, an upward revision for the first two years that the bank attributed to “the greater than expected resilience of the euro area economy”. Unemployment stood at 6.4% in July. Lagarde pointed to solid manufacturing as governments spend more on defence and infrastructure, and to rising activity linked to artificial intelligence.

The effects of tighter policy were already visible in bank lending. After the June increase, average lending rates for companies rose to 3.8% from 3.6%, the statement said, while mortgage rates were unchanged at 3.5%.

No promises about what comes next

The Governing Council met away from the ECB’s own headquarters, as guests of Germany’s Bundesbank, whose president Lagarde thanked for his hospitality. Central Banking, a specialist publication, reported that she spoke in Berlin alongside Bundesbank president Joachim Nagel. It quoted her as calling the decision a “no-brainer”. Il Foglio reported her as saying it had been taken unanimously.

The bank gave no signal on further moves. It repeated that it would decide “meeting by meeting” on the basis of incoming data and was “not pre-committing to a particular rate path”. It described the risks as tilted towards higher inflation and weaker growth, an uncomfortable combination for a central bank whose only tool for restraining prices also slows the economy.