The European Central Bank has raised its three key interest rates by 0.25 percentage points and said inflation is being pushed up by the war in the Middle East.
The deposit facility rate — which influences what banks earn on money parked at the central bank — will rise to 2.25%, while the main refinancing operations rate will increase to 2.40% and the marginal lending facility rate to 2.65%, taking effect on 17 June 2026, the ECB announced on Thursday.
The bank said further it is setting policy to bring inflation back to its 2% target over the medium term, adding that the rate rise was made in the context of inflation pressures linked to the conflict.
New Eurosystem staff projections put average headline inflation at 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028.
Inflation excluding energy and food — a common measure used to gauge underlying price pressures — is forecast to average 2.5% in 2026 and 2027 and 2.2% in 2028.
Staff revised up their inflation projections for 2026 and 2027 compared with March, citing a higher expected path for energy prices and knock-on effects into food, goods and services.
Growth outlook and bond holdings
Economic growth in the euro area is projected at 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028, with the 2026 and 2027 forecasts revised down, the ECB said.
The changes reflect a more pronounced impact of the war on commodity markets, real incomes and confidence.
The ECB pointed out that the outlook remained uncertain, with upside risks for inflation and downside risks for growth, and that the effects would depend on the intensity and duration of the energy price shock and its indirect and second-round effects.
It also said its bond holdings under the Asset Purchase Programme and the Pandemic Emergency Purchase Programme are declining as it no longer reinvests principal payments from maturing securities.
The central bank said it will take a data-dependent, meeting-by-meeting approach and is not pre-committing to a particular path for interest rates.
