ECB Raises Rates a Quarter Point to 2.5% as Iran War Keeps Inflation Well Above Target

The European Central Bank raised its key policy rate by 25 basis points to 2.50% on September 10, marking its second rate increase of the year as war-driven energy prices kept eurozone inflation locked well above its 2% target. Eurozone inflation hit 3.3% in August, up from 2.9% in July, with energy inflation spiking to 14.3%, largely tied to the ongoing conflict involving Iran that has pushed oil prices back above $100 a barrel.

Alongside the rate decision, the ECB revised its inflation outlook higher for 2027 and 2028, signaling that price pressures are expected to persist further into the medium term than previously projected. The bank's first hike of the cycle came in June 2026, the first increase since 2023, and was itself a direct response to the Iran war's effect on energy costs.

The decision had been widely anticipated, with market pricing placing a 98.9% probability on a 25 basis point move ahead of the meeting. Policymakers are now weighing the economic cost of further tightening against sticky inflation, with ECB sources previously indicating little appetite to signal additional hikes beyond September, leaving open the possibility of a prolonged hold at 2.5%.