European Central Bank raises interest rates by 25 basis points

On September 10, 2026, the Governing Council of the European Central Bank (ECB) announced a 25 basis point increase across its three key interest rates. Effective September 16, the deposit facility rate rose to 2.50%, the main refinancing operations rate to 2.65%, and the marginal lending facility rate to 2.90%. This move aims to curb persistent inflation, which the ECB expects to remain significantly above its 2% target for a prolonged period due to the ongoing Middle East conflict and its impact on energy prices.

The decision comes as inflation in the Eurozone, specifically in Cyprus, reached 5.2% in August 2026, up from 4.4% in July. Christodoulos Patsalides, Governor of the Central Bank of Cyprus, described the hike as necessary to manage the energy shock and geopolitical uncertainty. Economists and analysts suggest this trend may lead to further interest rate increases in the coming months if the regional instability continues to drive energy costs upward.

While the increase will raise borrowing costs, the Association of Cyprus Banks noted that the impact on floating-rate loans will not be immediate, depending on individual contract review dates. Meanwhile, many households have shifted toward fixed-rate loans, with new variable-rate mortgages for homes declining to 12.1% by July 2026, providing some protection against the current tightening cycle.