- 2.5% reached. The ECB raised its deposit facility rate by 25 basis points to 2.50% on Thursday, delivering the hike widely telegraphed after energy-driven inflation in the eurozone remained above the 2% target into September.
- Growth upgraded. Staff projections for 2026 GDP were revised up to 0.9% from the June estimate of 0.8%, reflecting greater-than-expected economic resilience despite elevated energy costs from the Iran-US conflict.
- Done, for now. Lagarde signalled the Governing Council is not pre-committed to a particular rate path, but analysts read the language as consistent with the September move being the last in this tightening cycle.
The Decision
The European Central Bank raised its three key interest rates by 25 basis points at its September 11 policy meeting, bringing the deposit facility rate to 2.50%, the main refinancing rate to 2.65%, and the marginal lending facility rate to 2.90%. The decision, reported by Central Banking, was unanimous among Governing Council members and backed by three converging factors: elevated headline inflation, a labour market that has proved more resilient than expected, and a growth outlook that — while modest — does not yet constitute grounds for easing.
ECB President Christine Lagarde told reporters at the post-decision press conference that risks to the growth outlook “are tilted to the downside” while risks to the inflation outlook “are currently tilted to the upside.” She reiterated the ECB’s commitment to a “data-dependent and meeting-by-meeting approach,” explicitly declining to pre-commit to any future rate path — language the market took as a signal that the September hike was the terminal move in this cycle, pending confirmation in the data.
Forecasts
Updated staff projections revised the 2026 eurozone growth forecast upward to 0.9%, from 0.8% in June, with 2027 growth upgraded to 1.4% from 1.2%. The more meaningful revision was to the inflation path: core inflation — excluding energy and food — is now projected at 2.5% for 2026 and 2.6% in 2027 before falling to 2.3% in 2028, compared with June forecasts of 2.5% in both 2026 and 2027. The upward revision to 2027 core inflation reflects persistent second-round effects from energy cost pass-through that ECB models now expect to persist longer than initially projected.
Headline inflation in the eurozone is running above 3%, driven in large part by retail energy prices elevated since the expansion of the US-Iran conflict to the Gulf tanker lanes. The inflation dynamics connecting Middle East energy supply to European consumer prices have defined ECB policy since the beginning of the year, as explored in earlier coverage of the run-up to the September meeting.
What Comes Next
Markets had priced a September hike at near-certainty for several weeks, with the debate focused on whether the ECB would deliver one final 25-basis-point move or pause. The actual decision removes that uncertainty and redirects attention to the October and December meetings, where the bar for additional action now appears higher. The RTÉ note from September 3 — “ECB set to raise rates in September, but then done” — proved accurate in its framing: the terminal rate of 2.50% is consistent with ECB models suggesting that stance is modestly restrictive relative to the eurozone’s estimated neutral rate.
The more pressing near-term question is duration — how long the ECB holds at 2.50% before energy dynamics shift sufficiently to warrant a first cut. With the Hormuz confrontation unresolved and European gas storage at multi-year lows heading into autumn, Lagarde’s caution about energy-driven upside risks reflects a Governing Council that sees more paths to needing further tightening than to easing before year-end.