ECB raises key interest rates by 25 basis points

Investing.com -- The European Central Bank raised its three key interest rates by 25 basis points on Thursday, citing inflation pressures from the war in the Middle East.

The interest rates on the deposit facility, main refinancing operations and marginal lending facility will increase to 2.25%, 2.40% and 2.65% respectively, effective June 17, 2026.

The Governing Council said the rate increase is designed to ensure inflation stabilizes at its 2% target in the medium term. The decision is robust across a range of scenarios for how the Middle East conflict might evolve and affect the euro area's medium-term outlook.

New Eurosystem staff projections show headline inflation is expected to average 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. Inflation excluding energy and food is forecast to average 2.5% in 2026 and 2027, and 2.2% in 2028.

The projections represent an upward revision for 2026 and 2027 compared with March, driven by a higher path for energy prices that is expected to feed into food, goods and services inflation.

Economic growth projections were revised downward. The baseline sees growth at an average of 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028. The downward revision for 2026 and 2027 reflects a more pronounced impact of the war on commodity markets, real incomes and confidence.

The ECB said the outlook remains uncertain, with upside risks for inflation and downside risks for economic growth. The full implications of the war for medium-term inflation and growth will depend on the intensity and duration of the energy price shock.

The Governing Council will follow a data-dependent and meeting-by-meeting approach to determining monetary policy stance. Interest rate decisions will be based on assessments of the inflation outlook and risks, incoming economic and financial data, underlying inflation dynamics and monetary policy transmission strength.

The central bank said it is not pre-committing to a particular rate path.

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