The European Central Bank did exactly what markets expected on Thursday, September 10, raising all three of its key interest rates by 25 basis points as the eurozone economy proves more resilient than forecast and oil prices keep climbing on the back of the conflict involving Iran.
As a result, the deposit rate, the main refinancing rate and the marginal lending rate rose to 2.50%, 2.65% and 2.90% respectively, effective September 16. «A foregone decision», ECB President Christine Lagarde called it at her press conference, where she declined, as usual, to offer any preview of what happens next to the cost of money in the euro area.
An answer of sorts came instead from the fresh economic projections the Eurotower released the same day.
New projections turn more hawkish on inflation
The ECB’s staff improved their eurozone growth estimates for 2026 and 2027, while also raising their inflation projections for 2027 and 2028. Under the baseline scenario, eurozone GDP is now expected to grow 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028 — an upward revision the central bank attributed mainly to «greater resilience in the euro area economy than expected».
Inflation forecasts moved the other way. Headline inflation is now seen averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, while core inflation (which excludes food and energy) is projected at 2.5%, 2.6% and 2.3% over the same three years. Compared with June’s projections, the 2026 figures are unchanged, but 2027 and 2028 were both revised upward — a shift driven largely by oil.
Oil keeps climbing, and it is reshaping the inflation outlook
Brent crude broke above $105 a barrel on the day of the meeting, up 3.7%, while West Texas Intermediate (WTI) topped $100 for the first time since May. Nicolas Forest, chief investment officer at Candriam, tied the move directly to the ECB’s decision: «the continuation of the conflict involving Iran has pushed Brent above $100 a barrel, reviving inflation concerns and pushing the ECB to revise its inflation forecasts higher for next year». Eurozone inflation had already accelerated to 3.3% year-over-year in August.
Lagarde herself acknowledged the channel, noting that «refining margins made a significant contribution to inflation» and that the eurozone is «facing a supply shock». For now, she added, one risk has not materialized: «wages have not reacted to higher energy prices» — a reassuring data point, even as she warned inflation is set to stay «well above target for longer» than previously thought.
Are markets pricing in too many rate hikes?
Lagarde offered no explicit forward guidance, sticking to the ECB’s now-familiar formula: decisions will be data-dependent and taken meeting by meeting. But the tone, analysts agreed, was unmistakably restrictive — the door to further hikes remains open, without any commitment to walk through it.
That has left bond markets pricing in what several economists consider an excessive amount of additional tightening. Forest estimates that fixed-income investors are pricing roughly 50 more basis points of hikes, which would take the deposit rate to 3.0% by March — a forecast he called «excessive», even as he agreed further ECB hikes are likely.
Konstantin Veit, portfolio manager at PIMCO, put the market’s implied terminal rate at around 3.25%, but argued the ECB itself would likely prefer fewer hikes than that: while the June and September increases had unanimous support on the Governing Council, going further “would probably divide the group and meet greater resistance.” Additional tightening, Veit noted, would likely require higher and more persistent energy prices, evidence of second-round effects on wages, or a de-anchoring of inflation expectations — though PIMCO does not rule out consecutive hikes starting as soon as December if the data turns more hawkish.
Andrea Campisi, senior investment manager at Pictet Asset Management, said markets read the meeting in a «markedly hawkish» way, pushing euro-area government bond yields to their highest levels since 2022 on the view that the ECB’s reaction function is now more focused on upside inflation risk than downside growth risk. Still, Campisi voiced doubts about whether a rate-hiking cycle of more than 100 basis points (of which 50 have already been delivered) is realistic given an economy grappling with an energy supply shock: growth, while resilient so far, could yet be slowed by rates now above the ECB’s own estimated neutral corridor of 1.75%-2.25% at the end of 2025, combined with high energy costs weighing on credit demand, consumption and investment.
Felix Feather, an economist at Aberdeen Investments, argued the decision itself mattered less than the ECB’s choice to use the meeting to acknowledge both a stronger economy and more persistent inflation than it expected just months ago — concluding that the Governing Council «appears increasingly unconvinced that 2.5% is necessarily the endpoint of this cycle». Roger Rüegg, head of multi-asset solutions at Swisscanto/Zkb, took a more skeptical view of further tightening, calling the market’s priced-in path «excessively ambitious» and flagging a cautious stance on European equities given contained earnings growth and the drag higher rates put on valuations.
The bigger picture: wages, growth and the Fed
On average, economists remain less hawkish than markets, but most still do not rule out at least one more ECB hike before year-end. The broader market backdrop has hardly calmed nerves: the US producer price index jumped 5.4% year-over-year in August, above July’s 4.8% and ahead of the 5.3% consensus, while core PPI rose 4.6%, in line with expectations. That data pushed the dollar higher and the euro below $1.16, with EUR/USD trading around $1.1633 following the ECB decision.
Government bond markets showed the strain building across the euro area even before Thursday’s decision: 10-year Italian BTP yields stood at 4.28%, French OAT yields at 4.34% and German Bund yields at 3.44%, putting the BTP-Bund spread at 84 basis points, while the US 10-year Treasury yield stood at 4.86%.
The eurozone is not the only place where central bankers are on the move. The Federal Reserve, now chaired by Kevin Warsh, announces its own rate decision on Wednesday, September 16, and the Bank of Japan meets September 18, where markets expect a hike to 1.25%, with a further move to 1.75% priced in for the second quarter of 2027.
Taken together, the message from Frankfurt is less about the 25 basis points delivered on Thursday than about what happens next: the eurozone’s inflation and interest-rate path now hinges less on the ECB’s own playbook than on how long the energy shock radiating from the Middle East conflict persists.
Editor’s note
This article was originally published in Italian on money.it by Laura Naka Antonelli on September 10, 2026 as «BCE alza i tre tassi di 25pb mentre petrolio balza oltre $105. Cosa accadrà ora, il dubbio: mercati troppo hawkish?». It has been translated and adapted for an international audience by the Money.it International desk.
