ECB Raises Key Rates to 2.5% Deposit Rate, Signals More Hikes

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The European Central Bank raised all three of its key interest rates by 25 basis points, taking the deposit rate from 2.25% to 2.5%, the main refinancing rate to 2.65% and the marginal lending rate to 2.9%. It was the ECB's second rate increase of 2026 following another quarter-point move in June. The central bank now expects headline inflation to average 3% in 2026, 2.5% in 2027 and 2.1% in 2028, with underlying inflation also seen above its 2% target throughout the forecast period, as rising energy prices tied to Middle East conflict push costs higher. The ECB raised its growth forecast to 0.9% for 2026 and 1.4% for 2027, citing better-than-expected resilience, stronger manufacturing and investment linked partly to defense, infrastructure and AI. Markets are roughly split on another increase at the October meeting and assign a much higher probability to at least one more hike before the end of the year, with some chance the deposit rate reaches 3% by Christmas.

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ECB raised all three key rates by 25bp and signaled more hikes, pushing the policy rate/yield higher

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