ECB raises rates by 25 bps to combat inflation fueled by Iran war

September 10, 2026 | 3:21 PM

She is Europe’s top central banker: ECB President Christine Lagarde Photo: Michael Probst / ap / dpa

By Simon Poelchau

The European Central Bank (ECB) is raising key interest rates for the second time since the start of the Iran war. The ECB Governing Council made the decision on Thursday following its meeting in Berlin.

“The conflict in the Middle East continues to generate inflationary pressure, and inflation is likely to remain significantly above our target level for an extended period,” the central bank stated.

As a result, the three interest rates at which commercial banks can park or borrow money from the ECB are rising by 0.25 percentage points to:

• 2.50%
• 2.65%
• 2.90%

Economists Expected the Move, but It Remains Controversial

By raising interest rates, the ECB aims to contain inflation. Ensuring price stability is its primary mandate; job creation and economic growth are secondary considerations. The central bank therefore accepts a dampening effect on the economy.

Higher key interest rates lead to higher borrowing costs for businesses and consumers, who consequently reduce investments and consumption. This curbs both demand and economic growth.

Previous Rate Hike and Persistent Inflation

The ECB last raised interest rates in June, also by 0.25 percentage points across all three main rates. That was the first monetary policy response to the Iran war, during which fuel prices rose sharply due to the blockade of the Strait of Hormuz.

Despite the June hike, inflation did not decline. According to Eurostat, the inflation rate stood at 2.8% in June and rose to an estimated 3.3% in August.

Without energy price increases, inflation would be just 2.2% — much closer to the ECB’s target of 2%, which it considers the threshold for price stability. However, fuel and similar commodities became on average 14.3% more expensive in the eurozone in August compared to the same month last year.

Impact on Germany

In Germany, consumers felt the effects of the Iran war less acutely. The inflation rate in the Federal Republic was 2.9% in August, according to the Federal Statistical Office. Nevertheless, drivers paid significantly more at the pump than a year earlier. Gas stations charged 27.7% more for fuels in August 2026 than in August 2025.

Critical Voices on the Rate Decision

While inflation has been higher in the past — reaching nearly 9% during the Russian attack on Ukraine — the current rate hike has drawn criticism.

• Silke Tober, from the Institute of Macroeconomic Policy Research (IMK), said: “The European Central Bank cannot effectively combat current inflation drivers through interest rate hikes, yet it has once again increased financing costs for an already heavily burdened economy.”
• Volker Treier, chief analyst at the German Chamber of Commerce and Industry (DIHK), added: “While the ECB’s interest rate increase is understandable given the continuing price pressures, many companies find it painful to digest.”

Rising Costs for the Public Sector

The impact of rising interest rates extends beyond businesses and consumers. Finance Minister Lars Klingbeil (SPD) will also feel the effects. He must already budget nearly €42 billion for debt servicing in next year’s budget. By 2030, this expenditure is likely to almost double to €80.7 billion — and this is not solely due to the current rate environment.