ECB raises key interest rates by 25 basis points

The European Central Bank increased its three key interest rates by 25 basis points to combat ongoing inflation pressures fueled by the Middle East conflict, according to an official statement on Thursday.

Under the new decisions, the interest rates on the deposit facility, main refinancing operations, and marginal lending facility will rise to 2.5%, 2.65%, and 2.90% respectively, taking effect on Sept. 16, 2026.

The bank underscored its commitment to setting monetary policy to ensure that inflation stabilizes at its 2% medium-term target, noting that price growth will likely remain well above this level for an extended period.

In its latest projections, ECB staff expect headline inflation to average 3% in 2026, 2.5% in 2027, and 2.1% in 2028, reflecting upward revisions for 2027 and 2028 compared to June estimates.

Core inflation, which excludes volatile energy and food prices, is forecast at 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028.

The bank also revised its economic growth outlook upward for both 2026 and 2027 due to greater-than-expected economic resilience, projecting real gross domestic product expansion at 0.9% for 2026, 1.4% for 2027, and 1.5% for 2028.

Addressing asset balance sheets, the ECB confirmed that its Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios are declining at a measured pace because the Eurosystem no longer reinvests principal payments from maturing securities.

ECB President Christine Lagarde will explain the considerations behind the rate decisions at a news conference later Thursday.