EUROPEAN CENTRAL BANK HIKES KEY RATES BY QUARTER POINT, LIFTS DEPOSIT RATE TO 2.5%

The European Central Bank (ECB) raised all three of its key interest rates by 25 basis points on Thursday, September 10, as the conflict in West Asia continues to fuel inflation pressures and cloud the economic outlook.

The ECB raised the deposit facility rate to 2.50%, the main refinancing rate to 2.65% and the marginal lending facility rate to 2.90%, with the new rates taking effect from September 16, 2026.

The central bank said its latest decision reflects its commitment to bringing inflation back to its 2% medium-term target, while acknowledging that inflation is likely to remain above target for an extended period.

 

ECB raises inflation forecasts for 2027, 2028

The ECB's latest staff projections put headline inflation at 3% in 2026, 2.5% in 2027 and 2.1% in 2028.

The projection for 2026 is unchanged from the June forecast, while estimates for 2027 and 2028 have been revised higher.

Inflation excluding energy and food is now projected at 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.

The ECB said the outlook remains highly uncertain, with inflation risks tilted to the upside and economic growth risks to the downside. Updated scenarios around the energy shock show that the path for inflation and growth will depend on the intensity and duration of the conflict, as well as its indirect and second-round effects.

 

ECB upgrades growth outlook

Despite the inflationary pressures, the ECB raised its growth projections for 2026 and 2027, citing greater-than-expected resilience in the euro area economy.

The central bank now expects eurozone growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028.

The ECB will continue to take a data-dependent, meeting-by-meeting approach to monetary policy and said it is not pre-committing to a particular rate path.

The central bank's Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios will continue to decline as the Eurosystem does not reinvest principal payments from maturing securities.

 

Fed rate decision next week

The ECB's decision comes as global investors also assess the outlook for US monetary policy amid renewed inflation concerns.

The US Federal Reserve is scheduled to meet on September 15-16, with its rate decision due next week. Markets are currently pricing around a 60% probability of a rate hike, with the August consumer price index (CPI) due on Friday expected to provide an important signal for policymakers.

The August CPI is expected to rise 0.4% month-on-month and 3.4% year-on-year, while the producer price index (PPI) due Thursday is expected to increase 0.3% from July and 5.3% from a year earlier.

Higher energy prices have added to the pressure on inflation expectations. Brent crude was above $100 a barrel on Thursday amid escalating tensions in the Middle East, raising concerns over further energy supply disruptions.

Gold remains near $4,400 as rate outlook stays uncertain

Gold prices remained around $4,400 an ounce as traders awaited US inflation data for clues on the Federal Reserve's next move.

Spot gold was down 0.2% at $4,392.38 an ounce in London trading, while silver fell 1% to $66.64 an ounce. Higher interest rates typically weigh on gold by increasing the opportunity cost of holding the non-yielding asset.

 

RBI rate outlook

The global rate outlook is also being watched in India, with Piramal Finance Managing Director and CEO Jairam Sridharan expecting the Reserve Bank of India (RBI) to raise interest rates by February.

He sees the probability of a December hike increasing amid recent developments, while February remains his base case. The key uncertainty, according to Sridharan, is whether the RBI opts for a sharp increase or a more gradual pace of tightening.

He also pointed to the potential impact of higher long-term US interest rates on India's monetary policy.

2026-09-10T13:08:36Z