ECB hikes deposit rate to 2.5% amid energy-driven inflation surge
The European Central Bank raised its key benchmark rate to 2.5% as conflict in the Middle East drives energy prices and keeps eurozone inflation above target.
On Thursday, the ECB Governing Council increased the deposit facility rate from 2.25% to 2.5%. The central bank also raised the main refinancing rate to 2.65% and the marginal lending facility to 2.9%. This represents the second interest rate hike since June 11, marking the first adjustment in three years. In its official statement, the ECB noted that ongoing conflict in the Middle East continues to generate inflationary pressures, with prices expected to stay well above the target for an extended period. The central bank stated that this decision positions it to navigate the uncertainty caused by the geopolitical situation. Staff projections estimate headline inflation will average 3% this year. However, forecasts have been revised upward to 2.5% for 2027 and 2.1% for 2028, compared with June estimates. This latest move follows an August inflation reading of 3.3%, a rise from July's 2.9% and the highest level since September 2023. Energy costs accounted for nearly the entire increase in price growth, with energy inflation jumping to 14.3% from 10.3%. Fighting around the Strait of Hormuz has kept crude oil supply constrained, keeping Brent crude prices above $100 a barrel.
