The European Central Bank raised its key deposit facility rate to 2.50% on Thursday, marking the highest level since February 2025 when the rate stood at 2.75%, as policymakers move to curb stubborn inflation that remains well above the bank's 2% target.
The ECB's Governing Council voted to increase the rate by a quarter percentage point at an extraordinary meeting in Berlin. Analysts had widely expected the move. The central bank first tightened policy in June in response to inflationary pressures fueled by the Iran-related conflict in the Middle East, and Thursday's decision signals a continued restrictive stance.
Euro-area inflation stands at 3.3%, significantly overshooting the ECB's 2.0% target. In its accompanying statement, the council said the decision underscores the Governing Council's resolve to adjust monetary policy so that inflation stabilizes at the medium-term target of two percent. It warned that the conflict in the Middle East continues to generate inflationary pressure and that inflation is likely to remain well above target for an extended period.
Markets are now pricing in the possibility of another rate increase as early as December. The oil price surged past the psychologically significant $100-per-barrel mark midweek, driven by fears that escalating attacks in the Middle East could disrupt oil shipments from the region. The ECB aims to prevent an oil-price shock from permanently altering the price environment across the euro area, as elevated energy costs for consumers and businesses could trigger a wage-price spiral and entrench high inflation.
Despite the hawkish turn,Bundesbank President Joachim Nagel recently noted there were still no signs of such a spiral taking hold. He pointed to declining core inflation — which excludes volatile energy and food prices — having eased to 2.4% from 2.5% previously, a metric the ECB closely monitors.
