The European Central Bank has raised its interest rates as the conflict in the Middle East continues to fuel inflationary pressures, with inflation expected to remain above the 2% target for an extended period.
Following its Governing Council meeting, the ECB said the decision underlined its commitment to ensuring inflation stabilises at its 2% medium-term target.
Under the ECB’s latest baseline projections, headline inflation is expected to average 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028.
Inflation excluding energy and food is projected at 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.
Compared with its June projections, the ECB left its headline inflation forecast for 2026 unchanged but revised its projections upwards for 2027 and 2028.
Growth outlook revised upwards
The ECB’s baseline scenario puts eurozone economic growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028.
The forecasts for 2026 and 2027 have both been revised upwards, mainly reflecting stronger-than-expected resilience in the euro area economy.
However, the outlook remains highly uncertain, with risks tilted upwards for inflation and downwards for economic growth.
Energy disruption remains key risk
The ECB said its updated scenarios for the energy disruption reflect a wide range of possible outcomes for growth and inflation.
These depend on assumptions about the intensity and duration of the disruption, as well as its indirect and second-round effects on the economy.
The Governing Council said its latest decision leaves it in a position to respond to the uncertainty created by the conflict.
It will continue to follow a data-dependent approach, making decisions meeting by meeting when determining the appropriate direction of monetary policy.
Interest rate decisions will be based on the ECB’s assessment of the inflation outlook and associated risks, incoming economic and financial data, underlying inflation dynamics and the strength of monetary policy transmission.
The Governing Council said it was not committing in advance to any particular path for interest rates.
New rates take effect September 16
Following today’s increase, the interest rates on the deposit facility, main refinancing operations and marginal lending facility will rise to 2.50%, 2.65% and 2.90%, respectively.
The new rates will take effect on September 16, 2026.
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