The European Central Bank raised its three key interest rates by 0.25 percentage points, taking the deposit rate to 2.5%, as the Middle East conflict pushes up energy costs. Euro-area inflation reached 3.3% in August, including 14.3% energy inflation, and the ECB lifted its 2027 inflation forecast to 2.5% from 2.3%, while raising its growth forecasts for 2026 and 2027. This suggests policy may remain restrictive even as higher energy bills weigh on households and firms. Markets priced about 0.85 percentage points of further tightening by end-2027, German 10-year yields hit their highest since 2011, the STOXX 600 fell 0.6% and the euro slipped 0.1%.