Key Takeaways
- Economists widely expect the ECB to raise interest rates at its upcoming meeting.
- The rate policy after that is less certain, with traders anticipating further increases, while some analysts expect a prolonged pause after September as second-round effects on prices remain limited.
- Updated ECB forecasts for inflation and growth are expected to show only minor revisions, with inflation still projected to move back toward target in 2027.
The European Central Bank looks set to raise its key interest rates by 0.25 percentage points on Sept. 10 as surging energy prices push inflation further above the ECB’s 2% target.
Eurozone inflation accelerated to 3.3% in August from 2.9% in July, according to Eurostat’s preliminary estimate. Core inflation, which excludes energy and food, declined to 2.4% from 2.5%, while energy inflation jumped to 14.3% from 10.3% in July.
The inflation data came against a backdrop of falling equities and turmoil in global bond markets, as renewed exchanges of strikes between Iran and the US drove up oil prices and fueled inflation concerns.
Markets Expect ECB Rate Hike on Sept. 10
“Although only a few ECB members have commented publicly on the monetary policy outlook in recent weeks, we continue to expect the deposit rate to be raised by 25 basis points to 2.50% next week, as risks to the inflation outlook remain tilted to the upside,” says Ulrike Kastens, senior economist at DWS.
DekaBank’s head of capital markets and strategy Joachim Schallmayer also expects central bankers to raise rates on Thursday. “ECB President Christine Lagarde signaled this fairly clearly at the July press conference when she said that unless the data weakened significantly by then—and so far they have not—the conditions would be in place for a rate hike.”
Swap markets, where investors trade expectations for future interest rates, were pricing in a roughly 99% probability of a 0.25 percentage point rate hike at the ECB’s next meeting. Nearly two additional increases of the same size are priced in over the next twelve months, with one as early as December and a possible second one in the second or third quarter of 2027.
“With inflation still accelerating, the ECB is all but certain to hike at next week’s meeting, in line with our expectations. However, unlike markets, we think it is too early to pencil in a third hike, especially given that underlying price pressures remain contained for now,” says Leo Barincou, senior economist at Oxford Economics.
What Are the Key ECB Interest Rates?
The ECB raised its deposit rate to 2.25 percent in June 2026, following eight cuts that had brought it down from 4.00 percent to 2.00 percent.
Since June 17, the three key ECB interest rates have been:
- Deposit facility rate: 2.25%
- Main refinancing rate: 2.40%
- Marginal lending facility: 2.65%
Will the ECB Hike Rates Again After September?
With little evidence that higher energy prices are feeding into faster wage growth, economists question whether another increase will be necessary after September.
“As long as inflation remains mainly energy-driven, hiking rates further beyond next week would not make a lot of sense and could harm the eurozone economy,” says Carsten Brzeski, global head of macro at ING.
He describes the expected move next week as insurance against the risk that higher energy costs spread into broader prices and wages. A deposit rate of 2.50% would still fall within the range the ECB considers neutral, he says. Further increases would signal a move toward restricting economic activity.
Rising bond yields are already tightening financing conditions, reducing the need for further rate increases, Brzeski argues. Widening differences in borrowing costs between eurozone countries could create additional problems.
DWS’s Kastens also sees little need for restrictive monetary policy. Strong competition limits companies’ ability to pass higher costs on to consumers, while relatively moderate wage growth makes a self-reinforcing inflation process unlikely, she says.
DWS forecasts the deposit rate to remain at 2.50% after September’s hike through the end of its 12-month forecast horizon in September 2027. Nevertheless, Kastens expects Lagarde to keep further increases on the table and emphasize that decisions depend on incoming data.
Deka’s Schallmayer says: “We believe that two rate hikes—the one in June and the expected increase in September—are sufficient to respond to the rise in energy prices. Provided second-round effects remain absent, we believe the ECB can refrain from further tightening. We do not expect such effects and anticipate a prolonged pause after September, lasting through the end of next year.”
Second-round effects emerge when higher prices feed into wages and subsequently trigger further price increases.
When Are the Next ECB Meetings in 2026?
- Oct. 29, 2026
- Dec. 17, 2026
The strongest argument against a prolonged hiking cycle is the limited evidence that the energy shock is generating such a self-reinforcing inflation. “At present, there are no signs that underlying inflationary pressures are becoming more broad-based,” says Kastens.
Deka’s Schallmayer says he monitors negotiated wage growth and wage drift—the difference between growth in actual wages and salaries per employee and collectively negotiated wage increases —to assess whether second-round effects are emerging. So far, he sees no evidence of such effects.
Economic resilience nevertheless gives policymakers room to act. Mark Haefele, chief investment officer at UBS Global Wealth Management, points to strengthening manufacturing activity, while Kastens notes that business lending continues to expand despite higher interest rates.
Why Gas and Oil Prices Remain Elevated
The renewed escalation of US-Iran hostilities is keeping energy-supply risks elevated. Europe also faces low natural gas storage levels that are expected to drive up wholesale prices further. Benchmark Dutch TTF gas prices rose above EUR 72 per megawatt-hour on Sept. 2, their highest level in more than three and a half years.
Combined with higher transportation expenses and drought-driven increases in food and industrial product prices, these pressures could delay the return of overall inflation below 2% until the end of 2027, says ING’s Brzeski.
Schallmayer expects Brent crude to ease toward USD 80 a barrel by year-end and around USD 70 in 12 months. Renewed attacks on energy infrastructure remain the central risk, potentially pushing prices back above USD 100.
Little Change Expected in Updated ECB Inflation and Growth Forecasts
ECB staff will also publish updated quarterly inflation and growth forecasts, but economists expect only minor revisions to the June projections.
In June, staff said they see inflation averaging:
- 3.0% in 2026
- 2.3% in 2027
- 2.0% in 2028
For core inflation, which excludes energy and food prices, they projected an average of 2.5% in 2026 and 2027 and 2.2% in 2028.
ECB staff changed their economic growth projections for the eurozone in June to:
- 0.8% in 2026
- 1.2% in 2027
- 1.5% in 2028
Kastens expects the central message of the inflation forecasts to remain unchanged: Overall inflation should move back toward the 2% target in the second half of 2027.
