The eurozone faces tighter borrowing conditions while geopolitical disruption drives prices higher.
BERLIN, GERMANY
The European Central Bank has raised its deposit rate by 25 basis points, from 2.25% to 2.5%, responding to renewed inflationary pressure from rising oil and gas prices. The increase, approved unanimously at a meeting in Berlin, is the ECB’s second rate rise of 2026 and will take effect on September 16.
The main refinancing rate will rise to 2.65%, while the marginal lending facility will reach 2.9%. Eurozone inflation climbed to 3.3% in August, remaining significantly above the ECB’s 2% target. The institution now expects inflation to average 3% in 2026 and to remain elevated for longer than previously projected.
Conflict involving the United States and Iran, together with disruptions around the Strait of Hormuz, has pushed Brent crude above $100 per barrel and sharply increased European gas prices. Higher energy costs can spread through transportation, manufacturing, food production and household utilities, transforming an external supply shock into broader inflation.
President Christine Lagarde warned that the economic outlook remains unusually uncertain. Although the ECB increased its eurozone growth forecast for 2026 to 0.9%, higher interest rates will make mortgages, consumer credit and business financing more expensive. Savers may benefit from improved deposit returns, but heavily indebted households, companies and governments will face additional pressure.
The decision reveals the limits of monetary policy during an energy crisis. Higher rates can reduce spending and prevent inflation from becoming entrenched, but they cannot produce oil, protect shipping routes or resolve geopolitical conflict. The ECB must therefore contain price expectations without weakening an economy already exposed to costly imported energy.
Monetary policy can restrain demand, but it cannot reopen an energy route.