The European Central Bank will hold its next meeting on 10 September 2026. Joachim Nagel, President of the Bundesbank and a member of the ECB Governing Council, said he estimates the probability of an interest rate increase at more than 95%.
The reason is a renewed acceleration in inflation. Inflation in the euro area stood at 2.9% in July and rose to 3.3% in August, while the ECB’s target is 2%. According to Nagel, based on the June projections, bringing inflation back to target over the medium term would require higher interest rates.
At the same time, the German central banker did not make any predictions about decisions beyond the September meeting. The situation is being influenced by sharp fluctuations in oil and gas prices, as well as rising government bond yields. The ECB is therefore likely to continue making decisions on a meeting-by-meeting basis, assessing new economic data as they become available.
Another risk is the so-called second-round effects of inflation. If high prices persist in the economy for longer, they may gradually feed through into wages and the cost of goods and services in other sectors.
Inflation in Cyprus reached 5.2%
For Cyprus, the situation appears particularly serious. According to Eurostat’s preliminary estimate, annual inflation on the island reached 5.2% in August 2026, compared with 0% a year earlier.
This is significantly above the euro-area average of 3.3%. Among countries in the currency bloc, only Lithuania recorded a higher rate, at 5.8%. Eurostat plans to publish the final inflation figures for August on 17 September 2026.
At euro-area level, the main factor behind the acceleration was energy: annual energy price growth in August was estimated at 14.3%, compared with 10.3% in July. At the same time, core inflation excluding energy stood at around 2.2%, indicating that a significant part of the current increase is linked specifically to the energy component.
What another rate increase could mean for residents of Cyprus
The ECB last raised its three key interest rates in June. The deposit facility rate increased from 2% to 2.25%, the main refinancing operations rate from 2.15% to 2.4%, and the marginal lending facility rate from 2.4% to 2.65%. The new rates have been in effect since 17 June 2026. If the ECB does raise rates on 10 September, borrowers with variable interest rates are likely to feel the impact first, especially if their loans are linked to Euribor.
For mortgage holders, this could mean higher monthly repayments. With a fixed interest rate, the effect would usually be felt only after the fixed-rate period ends.
In Cyprus, the cost of housing loans is already noticeably higher than it was several years ago. According to the Central Bank of Cyprus, the average interest rate on loans for house purchases stood at 3.86% in March 2026, up from 3.45% in February. The average rate on consumer loans was 6.79%.
The impact on businesses could also be significant. In March, the average rate on loans of up to €1 million to non-financial corporations was 4.4%, while for loans exceeding €1 million it stood at 4.1%.
Why Cypriot depositors receive less
An ECB rate increase does not automatically mean a similar increase in deposit rates. The Central Bank of Cyprus notes that deposit rates on the island remain among the lowest in the euro area. In March 2026, the average rate on household deposits with a maturity of up to 1 year was just 1.18%, while the rate on deposits from non-financial corporations stood at 1.39%.
The transmission of monetary policy changes in Cyprus varies depending on the type of financial product. For new housing loans, it is generally close to the euro-area level, while for loans to non-financial corporations the pass-through of interest rate changes is weaker.
In other words, a possible ECB rate increase on 10 September could create a rather uneven situation for residents of Cyprus: borrowers with variable rates may have to pay more, while bank deposit holders may not necessarily receive a comparable increase in returns.