European Central Bank Expected to Raise Rates to 2.50%

The European Central Bank is expected to raise its deposit rate by a quarter-point to 2.50% on September 10. This anticipated move follows a rise in eurozone inflation, which climbed to 3.3% in August from 2.9% in July, exceeding the bank's 2% target.

Economists attribute the inflationary spike primarily to energy supply shocks and higher fuel prices resulting from a six-month conflict between the United States and Iran, including disruptions to the Strait of Hormuz shipping lane. ECB economists noted that adverse energy supply factors accounted for approximately 90% of the increase in energy inflation between January and May 2026, while demand and public policy stimulus played minor roles.

If implemented, this would be the second increase in the current campaign following a hike to 2.25% on June 11, marking the shortest tightening cycle since 2011. While some market futures price in a third move, a Reuters poll of economists suggests the bank will stop hiking after September to avoid risking a recession amid fragile economic activity and surging bond yields.

Analysts warn that intensifying conflict in Iran could further drive up fuel and food prices. Such pressures could raise short-term consumer inflation expectations and lead to wage slippage, potentially forcing the bank to reconsider its tightening path.