The European Central Bank raised its three key interest rates by 25 basis points on Thursday, its first increase in nearly three years, saying the war in the Middle East is generating inflation pressures. The Governing Council's decision was unanimous, President Christine Lagarde told reporters.
The deposit facility rate rises to 2.25 percent with effect from 17 June 2026, the main refinancing operations rate to 2.40 percent, and the marginal lending facility rate to 2.65 percent. The move ends the extended pause that had followed the ECB's earlier easing cycle.
STAFF PROJECTIONS REVISED HIGHER
New Eurosystem staff projections accompanying the decision show HICP inflation averaging 3.0 percent in 2026, before easing to 2.3 percent in 2027 and 2.0 percent in 2028. Compared with March, staff revised up their inflation projections for 2026 and 2027 owing to a higher path for energy prices, which is expected to feed to some extent into food, goods and services inflation.
Inflation excluding energy and food is projected to average 2.5 percent in 2026 and 2027 and 2.2 percent in 2028. Lagarde nonetheless rejected the idea that the increase was a pre-emptive insurance move, describing it as a "sensible monetary policy decision".
BALANCE SHEET RUN-OFF CONTINUES
Alongside the rate decision, the Governing Council confirmed that the asset purchase programme and pandemic emergency purchase programme portfolios continue to decline at a measured and predictable pace, with the Eurosystem no longer reinvesting the principal payments from maturing securities.
Staff projections see growth averaging 0.8 percent in 2026, 1.2 percent in 2027 and 1.5 percent in 2028, a downward revision for 2026 and 2027. The ECB said the outlook remained uncertain, with upside risks for inflation and downside risks for economic growth.
The full monetary policy statement and the accompanying press conference materials were published on the ECB website. The ECB said it would follow a data-dependent, meeting-by-meeting approach and was not pre-committing to a particular rate path. The hike had been fully priced by markets ahead of the meeting, according to MUFG. The Governing Council's next monetary policy meeting is scheduled for 23 July 2026.