ECB raises key interest rates as inflation pressures persist in euro area

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ECB raises interest rates

Highlights

ECB raises key interest rates by 25 basis points, setting the deposit rate at 2.50%, refinancing rate at 2.65%, and marginal lending rate at 2.90% effective 16 September 2026.
ECB staff project headline inflation at 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028, with core inflation outlook for 2027 and 2028 revised upward.
ECB notes ongoing asset portfolio reduction, maintains the Transmission Protection Instrument, and reiterates policy will remain data-dependent amid high macroeconomic uncertainty.

Rate increase and updated projections

As reported by the European Central Bank, the Governing Council decides to raise the three key ECB interest rates by 25 basis points to reinforce its commitment to returning inflation to the 2% medium-term target.

The deposit facility rate rises to 2.50%, the main refinancing operations rate to 2.65%, and the marginal lending facility rate to 2.90%. The new rates take effect on 16 September 2026.

ECB staff projections see headline inflation averaging 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, with the 2026 outlook unchanged from June and the 2027 and 2028 forecasts revised higher.

The baseline projection for euro area economic growth is 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. The ECB says this marks an upward revision for 2026 and 2027, mainly reflecting stronger than expected resilience in the euro area economy.

Uncertainty, asset holdings and policy stance

The ECB says the outlook remains highly uncertain, with upside risks to inflation and downside risks to growth. Updated staff scenarios on the energy shock show a wide range of possible outcomes depending on the intensity and duration of the shock and on indirect and second-round effects.

The Governing Council says it remains well positioned to navigate uncertainty linked to the Middle East conflict and will continue to set policy on a data-dependent, meeting-by-meeting basis. It says rate decisions will depend on the inflation outlook, incoming economic and financial data, underlying inflation dynamics and the strength of monetary policy transmission, without pre-committing to a specific rate path.

The ECB also says the APP and PEPP portfolios continue to decline at a measured and predictable pace because the Eurosystem no longer reinvests principal payments from maturing securities. It adds that the Transmission Protection Instrument remains available to counter disorderly market dynamics that threaten policy transmission across the euro area.

Our earlier coverage focused on cautious trading in currency markets as investors waited for the ECB’s expected 25-basis-point rate hike and upcoming U.S. inflation data. We noted that sterling stayed near recent ranges versus the euro and slightly firmer against the dollar, while traders also weighed diverging rate expectations between the ECB and the Bank of England alongside key UK growth indicators.

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