ECB raises deposit rate to 2.5% as inflation stays sticky

The European Central Bank raised its deposit rate by 25 basis points to 2.5% — its second hike since the Iran war began — as eurozone inflation accelerated to 3.3% in August. The move was unanimous, per Reuters, but the outlook splits markets (pricing more hikes) from most economists (expecting a pause). The Reserve Bank of Australia may follow, with 72% of market pricing a September hike.

Bottom line — ECB’s second 2026 hike puts rates at 2.5%; markets see more tightening while 91% of economists polled by Reuters expect no further move.

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• Eurozone inflation hit 3.3% in August, driven by energy inflation surging to 14.3%, according to Eurostat data cited by FXEmpire.
• Energy inflation is largely a supply shock, per FXEmpire: higher oil and gas costs from the Iran conflict, which central banks cannot directly address with rate hikes.
• ECB Executive Board member Isabel Schnabel has taken a hawkish position, arguing current policy may not be enough to bring inflation back to target over the medium term, per FXEmpire.
• Meanwhile, the Federal Reserve faces a similar dilemma: Chair Kevin Warsh’s hawkish Jackson Hole speech pushed market odds of a US rate hike in September to nearly 60%, per ABC News and Morningstar.
• Three Fed policymakers voted for a rate hike at the July meeting, the most dissenters in the same direction since 2016, ABC News reported.
• The Reserve Bank of Australia’s deputy governor Andrew Hauser warned inflation is 'too high,' and Westpac reinstated a November rate hike call, according to Financial Standard.
• Bloomberg’s survey of economists shows they still expect the Fed to cut rates in Q3 2027, even as markets price near-term hikes — a gap that reflects different views on whether energy-driven inflation will persist.

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