The European Central Bank raised all three of its key interest rates by 25 basis points on September 10, 2026, bringing the deposit facility rate to 2.50%, the main refinancing operations rate to 2.65%, and the marginal lending facility rate to 2.90%. The decision took effect on September 16. The ECB is thus consolidating a second tightening move in a matter of months, driven by resurgent inflation pressures fueled by the energy shock tied to Middle East tensions.
🔑 Key Takeaways
- Deposit rate raised to 2.50% (+25 bp), MRO rate at 2.65%, marginal lending facility at 2.90%, effective September 16.
- Inflation projected at 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028 (headline); 2027 and 2028 forecasts revised upward.
- Markets price a possible December hike toward 2.75%, with roughly 40% probability before the meeting.
- Goldman Sachs expects a terminal rate of 2.75% and a normalization path starting in late 2027.
- No wage-price spiral detected so far; second-round effects remain limited.
Context: A Tightening Cycle Reversed and Restarted
Since July 2022, the ECB has pursued a historic tightening cycle, raising the deposit facility rate from -0.50% to 4.00% over ten consecutive hikes. A first easing cycle followed: from September 2023 to June 2025, eight consecutive cuts brought the deposit rate down to 2.00%. A pause was observed in July 2026, during which the Governing Council held rates steady at 2.25% for the deposit facility.
The resurgence of Middle East tensions — notably the conflict between the United States and Iran as well as the war in Ukraine — has reignited inflation pressures. The surge in energy prices has served as the primary driver behind the cycle’s reversal: natural gas prices have nearly doubled since June and cracks in refined petroleum product spreads have widened considerably. In response to these upside risks, the ECB restarted tightening in June 2026 (+0.25 points), followed by a further hike in September.
Macroeconomic Projections: Inflation Stuck Above Target
New projections released during the September meeting confirm a prolonged overshoot of inflation above the 2% medium-term target. Headline inflation (including energy and food) is forecast to average 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. Core inflation (excluding energy and food) is projected at 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028.
Compared with the June projections, outlooks for 2027 and 2028 have been revised upward, while the 2026 forecast remains unchanged. Euro area GDP growth is estimated at 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028, with upward revisions for 2026 and 2027 reflecting above-expected economic resilience.
| Indicator | 2026 | 2027 | 2028 |
|---|---|---|---|
| Headline inflation | 3.0% | 2.5% | 2.1% |
| Core inflation (ex-energy/food) | 2.5% | 2.6% | 2.3% |
| GDP growth | 0.9% | 1.4% | 1.5% |
The ECB stated that the deposit rate of 2.50% sits within the neutral range according to staff estimates. The neutral rate refers to the level of interest rates that neither stimulates nor restrains growth or inflation, making it a key analytical benchmark for policymakers.
Recent Inflation Data and No Wage-Price Spiral
In July 2026, euro area headline inflation stood at 2.9% and core inflation at 2.5%. In August, core inflation came in at 2.4% year-over-year, a level similar to the one recorded before the onset of the Middle East conflict. Food inflation, however, deteriorated due to unusual weather conditions.
Wage data so far shows no sign of a wage-price spiral, which mitigates fears of second-round effects (the transmission of initial price increases into wages and other price components). This situation confirms that the shock is primarily supply-driven rather than a result of excessive demand.
Risks and Uncertainties: All Options Remain Open
The Governing Council emphasized that risks to inflation remain tilted to the upside, while risks to growth are tilted to the downside. Uncertainty remains elevated due to the evolution of the Middle East conflict and its impact on energy markets. The ECB clearly signaled that it does not rule out any option, refusing to commit to a precise future rate trajectory.
“Uncertainty remains high and the full inflationary impact of the energy shock has not yet played out. We are closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects.”
Christine Lagarde, President of the ECB
Lagarde described the September hike as a “no-brainer,” underscoring the need to combat persistent inflation pressures.
Market Expectations and Economist Positions
Markets broadly anticipated the September hike: futures contracts incorporated an approximately 80% probability of a 25 basis point increase at that meeting, along with an approximately 40% probability of a further hike by December. Following the decision, attention shifts to a possible additional increase in December, which would bring the deposit rate to 2.75%.
Goldman Sachs: Terminal Rate at 2.75%
Goldman Sachs forecasts a December hike bringing the deposit rate to 2.75%, while expressing skepticism about the probability of keeping rates sustainably above 3%. The firm projects a terminal rate of 2.75% and expects a return to rate normalization starting from late 2027, once inflation has come down.
“We are skeptical about the probability that the ECB will keep rates well above 3%. We forecast an additional hike in December, bringing the deposit rate to 2.75%.”
Jari Stehn, Chief Economist for Europe at Goldman Sachs
Bank of America: One Final Hike, Then Easing
Bank of America supports the possibility of one additional hike despite weak growth, highlighting that the ECB places significant weight on upside inflation risks. The bank’s economists expect a final tightening move, potentially deferred to September due to the recent decline in oil prices, followed by easing in 2027.
Other Market Voices
Bastian Freitag, Head of Economic Research at Rothschild & Co Wealth Management Germany, stated that his base case is a 25 basis point hike in September, while estimating that “the probability of rates being held steady is higher than the market reflects.” He added that he currently observes “no second-round effects and no wage-price spiral.”
Mark Dowding, Fixed Income Investment Director at RBC BlueBay Asset Management, estimated that the ECB had given relatively clear indications in favor of a September hike and that this move may not be the final one of the current cycle, as long as energy markets remain under pressure.
“Beyond 2026, the horizon is far less clear. In essence, commentators expect rates to remain steady, high enough to fight persistent inflation, but low enough not to meaningfully restrain regional growth — a Goldilocks territory.”
Michael Field, Chief Markets Strategist at Morningstar
Ulrike Kastens, Senior Economist at DWS, expected the ECB to bring the deposit rate to 2.50% in September, noting that recent inflation is largely attributable to higher energy prices, with indirect effects remaining limited at this stage.
Balance Sheet Policy and Quantitative Tightening
Alongside interest rate adjustments, the ECB continues to unwind its Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP). Portfolios are declining at a measured and predictable pace, as principal repayments on maturing securities are no longer reinvested.
The ECB’s balance sheet has fallen from a peak of EUR 8.3 trillion in 2022 to approximately EUR 6.3 trillion at end-2025, and is expected to continue contracting. This reduction in excess liquidity could influence money market conditions and increase demand for ECB refinancing operations, thereby contributing to an additional tightening of financial conditions.
Upcoming Meeting Calendar
The next ECB Governing Council meetings for the remainder of 2026 are scheduled as follows:
| Date | Status | Expectation |
|---|---|---|
| September 10, 2026 | Completed | +25 bp → 2.50% |
| October 29, 2026 | Upcoming | Interim assessment |
| December 17, 2026 | Upcoming | Possible hike to 2.75% |
Synthesis of Positions: A Three-Phase Scenario
Almost all economists and market participants surveyed agree on an additional 25 basis point hike in December 2026, bringing the deposit rate to 2.75%. Divergence concerns the subsequent path:
- Easing scenario (majority): Possible rate cuts as early as 2027, once base effects push inflation lower and monetary policy transmission is felt in the real economy.
- Extended-high-rates scenario (Goldman Sachs): Rates held around 2.75% through end-2027 before gradual normalization.
- Goldilocks scenario (Morningstar): Rates high enough to contain inflation but low enough not to meaningfully restrain growth — a balanced sweet spot.
ECB officials continue to emphasize a “data-dependent” and “meeting-by-meeting” approach, with no prior commitment to a precise trajectory. The ECB will remain guided by developments in inflation, growth, and energy markets over the coming months.
Conclusion: Energy Markets at the Center of Decisions
The 25 basis point hike on September 10 confirms that the ECB views the inflation threat as its top priority, even at the potential expense of growth. Positioning at 2.50% — squarely within the neutral range — gives the ECB comfortable room to adjust policy based on the evolution of energy prices and the extent of indirect effects from the shock.
Everything now hinges on the evolution of the Middle East conflict and the trajectory of natural gas and oil prices. If tensions persist and headline inflation remains above 3%, a December hike appears nearly certain and additional moves cannot be ruled out. Conversely, a geopolitical easing and a return of energy prices to pre-conflict levels would open the door to rate cuts in 2027, as the majority of economists suggest. In all cases, the ECB maintains a posture of maximum caution, reaffirming that it will not commit to any trajectory while uncertainty remains elevated.
Sources
- European Central Bank – Press release, September 10, 2026
- Goldman Sachs – Why the ECB is unlikely to keep rates higher than 3 percent
- Morningstar – Will the ECB raise interest rates again in 2026?
- Yahoo Finance – ECB may yet raise key rate again
- Trading Economics – Euro Area Interest Rate
- House of Commons Library – Central bank interest rates
This article is published for informational and educational purposes. It does not constitute investment advice in any form. Conduct your own research (DYOR) before making any decision.
