ECB raises interest rates with ongoing Iran crisis fueling inflation fears

Mortgage holders were dealt a blow today with news of another European Central Bank rise in interest rate by a 0.25 per cent rise. It's the second rise this year.

The Governing Council today decided to raise the three key ECB interest rates by 25 basis points.

The move will automatically affect tracker mortgage customers whose repayments will rise by €13 per month for every €100,000 borrowed.

In a statement the ECB said the conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period.

Attacks by both sides since the end of August have shattered a month of relative calm, with the US ⁠and Iran hitting military, shipping and energy assets.

That has sent oil prices back above $100 a barrel and revived fears about a wave of price hikes in the fuel-importing euro zone.

The ECB responded by raising its policy rate to 2.5% from 2.25%, saying inflation was expected to stay above its 2% goal for some time.

"Today’s decision underscores the Governing Council’s commitment to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term."

"The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth. In relation to the energy shock, the updated scenarios put together by staff illustrate the broad range of outcomes for how growth and inflation would evolve under different assumptions about its intensity and duration, as well as its indirect and second-round effects.

"With today’s decision, the Governing Council remains well positioned to navigate the uncertainty caused by the conflict. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path."

The Governing Council has raised the three key ECB interest rates by 25 basis points. Accordingly, the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will be increased to 2.50%, 2.65% and 2.90% respectively, with effect from 16th September 2026.