ECB raises interest rate to 2.5% / Eurozone inflation rises to 3.3% amid higher energy prices

The European Central Bank (ECB) raised its policy interest rate by 0.25 percentage points to 2.5% on Thursday, amid accelerating inflation in the eurozone and pressures caused by the war in the Middle East and high energy prices.

This is the second interest-rate hike decided by the ECB in the past three months and the first series of increases in the past three years. The interest rate on main refinancing operations reached 2.65%, while the marginal lending facility rose to 2.9%.

Annual inflation in the eurozone rose to 3.3% in August, from 2.9% in July, its highest level since September 2023. The energy component accelerated to 14.3%, while core inflation fell to 2.4% and services inflation to 3%.

The ECB estimates average inflation at 3% in 2026 and has raised its forecasts for subsequent years: 2.5% in 2027 and 2.1% in 2028. The central bank warns that the effects of the conflict in the Middle East could keep inflation above the 2% target for an extended period.

ECB economists consider the current episode primarily a supply shock, unlike the energy crisis of 2021–2022. Inflation varies sharply between countries, however: 4.5% in Spain, 2.9% in Germany and 2.7% in France. Markets are now watching the decisions of the central banks of the United States, Japan and the United Kingdom.