ECB Hikes Rates and Raises Both Inflation and Growth Forecasts

Key Takeaways

• The ECB raised its key interest rate by 0.25 percentage points to 2.50% at its Thursday meeting.
• The inflation outlook remains unchanged for 2026 but is rising for the next two years, while the growth forecast has also been revised upward.
• Markets are now pricing in two more rate hikes in the course of 2026 amid resurging inflation.

As expected, the European Central Bank hiked its key interest rate by 0.25 percentage points to 2.50% on Thursday, saying that “the conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period.” This marks the second rate hike in 2026, after raising rates in June and keeping them unchanged in July.

The ECB’s Governing Council said the outlook remains “highly uncertain,” due to a “broad range of outcomes” for how the energy shock could affect growth and inflation. Its decision to raise rates was unanimous.

“Until now, we had expected 2.5% to mark the peak in ECB rates,” UBS economists said in a note after the decision. “However, following today’s press conference and the release of the new ECB staff macroeconomic forecasts, we are revising our call and now expect an additional 25bp hike to 2.75% at the 17 December meeting.”

What Are the Key ECB Interest Rates?

Starting from Sept. 16, the three ECB key interest rates will be:

• Deposit rate: 2.50% (up from 2.25%)
• Main refinancing rate: 2.65% (up from 2.40%)
• Marginal lending facility: 2.90% (up from 2.65%)

Before the latest rate hike, the ECB raised its deposit rate to 2.25% in June 2026, following eight cuts which brought it down from a peak of 4.00% to 2.00%. An interest rate of 2.50% is considered the upper limit of a neutral range of 1.75%-2.50%. Any further increase would shift the ECB’s monetary policy into restrictive territory, according to economists.

“The hike comes at a time when borrowing costs in the eurozone are at their highest since 2011, and they may negatively affect countries’ budgets and tighten financial conditions,” says Nicolò Bragazza, associate portfolio manager at Morningstar Wealth.

“An expected 25-point hike is not going to change market dynamics significantly, but if a hawkish message is sent, this can have broader consequences for the cost of borrowing and the euro.”

In the press conference following the announcement, Lagarde said the neutral rate band would not inform monetary policy decisions.

The ECB Raised Its Inflation Forecast

ECB staff have revised their economic forecasts. They now see overall inflation averaging:

• 3% in 2026 (stable from its June forecast)
• 2.5% in 2027 (up from 2.3%)
• 2.1% in 2028 (up from 2.0%)

For core inflation, which excludes energy and food prices, ECB staff project an average of 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028. This compares with June’s projections of 2.5% in both 2026 and 2027, and 2.2% in 2028.

In August, preliminary eurozone inflation rose to 3.3% from 2.9% in July, driven by energy prices, according to Eurostat. Core inflation came in at 2.4% in August, down from 2.5% in July.

Will the ECB Raise Interest Rates Again in 2026?

Market pricing implies a 75.1% probability of interest rates increasing in October, and a 73.3% probability in December.

“Looking ahead, we view the September hike as completing the ECB’s repositioning phase, leaving future decisions dependent on whether the energy shock feeds into broader domestic price pressures,” MUFG senior Europe economist Henry Cook said in a note on Sept. 7. “Our base case remains that the ECB has now completed its tightening cycle, although we acknowledge that the geopolitical backdrop leaves risks tilted towards an additional hike before year-end.”

The ECB’s chief economist Philip Lane has pointed to 2.5% as the upper bound of the ECB’s neutral rate estimate, so any tightening beyond this month would tip policy into restrictive territory.

According to Roman Ziruk, lead FX strategist at Ebury, “that would be a step too far, in our view, given the growth risks and the fact that the inflation problem remains almost entirely due to supply-side issues, not to mention that further hikes would add fuel to the fire in bond markets at a time when public finances are already under strain.”

The ECB was the first major central bank to meet this month. Next up are the US Federal Reserve on Sept. 16, the Bank of England on Sept. 17, and the Bank of Japan on Sept. 18.

When Are the Next ECB Meetings in 2026?

• Oct. 29, 2026
• Dec. 17, 2026