The European Central Bank on Thursday tightened monetary policy again, raising interest rates for the second time since the start of 2026. The move is aimed at curbing euro zone inflation, which has accelerated as energy prices rose amid the war with Iran, Reuters reported.
The ECB’s key deposit rate was lifted to 2.5%. The regulator considers that level to be the upper edge of the “neutral” range, meaning it neither restrains nor stimulates economic growth.
Higher oil and natural gas prices in August pushed inflation in the euro zone’s 21 countries well above 3%, compared with the ECB’s 2% target. The bank warned that any further escalation of the conflict could intensify price pressures and, over time, feed into wage dynamics.
“The outlook remains exceptionally uncertain, with risks to inflation tilted to the upside and risks to growth tilted to the downside,” the ECB said in a statement released after its meeting in Berlin.
At the same time, the regulator raised its 2026 euro zone growth forecast to 0.9% from the 0.8% expected in June. Average annual inflation is now projected at 3% in 2026 and 2.5% in 2027.
Investors expect additional rate increases later in 2026 and in 2027. However, Reuters said the ECB is unlikely to rush into follow-up decisions because the economic picture remains mixed.
Persistently high energy prices point to a risk of longer-lasting inflation pressure. Natural gas prices are another source of concern, with inventories still below historical averages ahead of the heating season.
Even so, the euro zone economy has proved more resilient than expected. The rise in energy costs has not yet fully passed through to other goods and services. Core inflation, which excludes volatile food and fuel prices, slowed in August thanks to easing inflation in services. Wage growth is also continuing to moderate.
Bond yields jumped in line with US Treasuries, tightening financing conditions. Still, current price pressures remain much weaker than in 2022, when inflation topped 10% after a sharp surge in energy prices.
