European Central Bank raises interest rates by 25 basis points

The European Central Bank (ECB) raised its three key interest rates by 25 basis points on Thursday, September 10, 2026. This decision aims to combat inflationary pressures driven primarily by the ongoing US-Iran conflict, which has resulted in elevated oil prices and record-high European gas costs. The Governing Council emphasized that inflation is expected to remain above the bank’s 2 per cent medium-term target for an extended period.

According to new ECB staff projections, headline inflation is forecast at 3.0 per cent for 2026, with estimates for 2027 and 2028 revised upwards to 2.5 per cent and 2.1 per cent, respectively. Despite the monetary tightening, the ECB upgraded its economic growth outlook for the euro area, projecting expansion of 0.9 per cent in 2026, 1.4 per cent in 2027, and 1.5 per cent in 2028, citing the unexpected resilience of the regional economy.

Before this move, markets had fully priced in the hike following August data that showed eurozone inflation rising above 3 per cent. While policymakers have been cautious about signaling further increases, traders continue to speculate on additional potential rate adjustments by December and into next year depending on energy market volatility.