The European Central Bank (ECB) is widely expected to raise its benchmark interest rates by 25 basis points on September 10, 2026, marking its second rate hike of the year [1, 2, 3, 4]. The ECB’s deposit rate is forecast to rise from 2.25% to 2.5%, responding to escalating inflation and geopolitical challenges, particularly the conflict in the Middle East [2, 3, 4]. Andrew Kenningham, Chief Europe economist at Capital Economics, said, "The ECB governing council looks certain to raise its deposit rate from 2.25 per cent to 2.5 per cent" [2].
Eurozone inflation reached 3.3% in August 2026, the highest level in three years and well above the ECB’s 2% target [2, 3, 4]. The recent escalation of the US-Iran conflict drove oil prices higher, pushing up energy costs and inflationary pressures across the eurozone [2, 3, 4]. The conflict saw some of its heaviest clashes on September 6, contributing further to inflation fears [2, 3, 4].
The ECB previously increased rates once in June 2026 but paused in July to assess the impact of the Middle East tensions on the economy and energy prices [2, 3, 4]. However, worsening geopolitical risks and persistent inflation now appear to be prompting the bank to resume tightening. Deutsche Bank analysts have revised their forecast and now expect ECB rates to peak around 2.75%, higher than their previous expectation near 2.5% [1]. The faster-than-expected eurozone economic growth in the second quarter of 2026 supports the Bank’s ability to raise rates further [3].
Not all economists agree with more hikes. Felix Schmidt, senior economist at Berenberg Bank, said, "We consider another hike a mistake because there is almost no evidence of knock-on effects. You can't tackle a supply shock with tighter monetary policy" [3]. Inflation related primarily to supply shocks in energy may respond poorly to rate increases.
Outside Europe, Asian markets reacted to US labor data and inflation expectations. On September 4, US non-farm payrolls rose 162,000 in August, significantly beating forecasts and fueling expectations for a 25 basis point Fed hike in mid-September [5, 6]. Bank Muamalat Malaysia’s chief economist Dr Mohd Afzanizam Abdul Rashid noted, "The NFP came in at 162,000 in August, well above the consensus forecast of 55,000. Labour force participation rate improved to 61.6 per cent." Malaysia’s ringgit and Bursa Malaysia opened higher following the data [5, 7, 6].
The ECB is scheduled to announce its official monetary policy decision at its meeting on September 10, 2026 [1, 2, 3, 4]. Market participants will closely watch for confirmation of the rate hike and any outlook comments linked to inflation and geopolitical risks.
