The European Central Bank has increased its three key interest rates by 25 basis points as it moves to address ongoing inflation pressures driven by conflict in the Middle East.
The Governing Council announced that the interest rate on the deposit facility will rise to 2.50%, the main refinancing operations to 2.65%, and the marginal lending facility to 2.90%, with the changes taking effect from 16 September 2026.
Central bank officials noted that inflation is expected to remain well above the 2% medium-term target for an extended period. According to new staff projections, headline inflation is forecast to average 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. While the projection for 2026 remains unchanged from June, the estimates for 2027 and 2028 have been revised upwards.
Inflation excluding energy and food is projected to reach 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028.
In a shift from previous estimates, the bank has raised its economic growth forecasts for 2026 and 2027, citing the unexpected resilience of the euro area economy. Growth is now anticipated to be 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028.
The Governing Council maintained that the economic outlook remains highly uncertain, with potential upside risks to inflation and downside risks to economic growth. The bank indicated it will continue to follow a data-dependent, meeting-by-meeting approach to determine future monetary policy and will not pre-commit to any specific interest rate path.
Regarding the bank’s balance sheet, the portfolios for the asset buy programme and the pandemic emergency buy programme are declining at a predictable pace, as the Eurosystem has ceased reinvesting principal payments from maturing securities.
The ECB also confirmed that the Transmission Protection Instrument remains available to counter any disorderly market dynamics that could threaten the effective transmission of monetary policy across the euro area. The Governing Council expressed its readiness to adjust all available instruments to ensure inflation stabilises at its target.
