ECB hikes rates again as Middle East conflict keeps inflation stubbornly high

The European Central Bank just did what markets expected and what borrowers feared: another rate hike. The Governing Council approved a 25 basis point increase across all three key interest rates on September 10, 2026, marking the latest step in what has become a prolonged battle against inflation that keeps getting reinforcements from geopolitical turmoil. The deposit facility rate now sits at 2.50%, the main refinancing operations rate at 2.65%, and the marginal lending facility rate at 2.90%. All three take effect on September 16. Inflation’s stubborn streak The ECB’s updated staff projections paint a picture of inflation that’s declining, just not fast enough for anyone’s comfort. Headline inflation is expected to average 3.0% across 2026, unchanged from the central bank’s previous forecast. That number is projected to cool to 2.5% in 2027 and finally approach the ECB’s 2% target at 2.1% in 2028. Core inflation, which strips out the volatile energy and food components, tells an even more frustrating story. It’s forecast at 2.5% for 2026, then actually ticks up to 2.6% in 2027 before retreating to 2.3% in 2028. The ongoing Middle East conflict has significantly disrupted energy ...