The European Central Bank raised its three key interest rates by 0.25 percentage points on Thursday, saying inflation was set to stay above its 2 per cent target for an extended period.
Inflationary pressure linked to the conflict in the Middle East was a central factor in the decision, with the ECB saying the situation continued to generate inflation pressures, according to a monetary policy statement released after its Governing Council meeting in Berlin on 10 September 2026.
It said it would continue to set policy so that inflation stabilises at 2 per cent in the medium term.
New staff projections put average headline inflation — the overall rate including energy and food — at 3.0 per cent in 2026, 2.5 per cent in 2027 and 2.1 per cent in 2028.
Inflation excluding energy and food was forecast at 2.5 per cent in 2026, 2.6 per cent in 2027 and 2.3 per cent in 2028.
The ECB forecast economic growth of 0.9 per cent in 2026, 1.4 per cent in 2027 and 1.5 per cent in 2028, adding that the 2026 and 2027 figures were revised upwards compared with June because of “greater than expected resilience” in the euro area economy.
It said it would keep a “data-dependent and meeting-by-meeting approach” and was “not pre-committing to a particular rate path”.
Inflation picks up in August
Inflation in the euro area rose to 3.3 per cent in August from 2.9 per cent in July, with energy inflation increasing to 14.3 per cent from 10.3 per cent, the statement said.
Food price inflation was unchanged at 1.2 per cent, while inflation excluding energy and food edged down to 2.4 per cent from 2.5 per cent. Within that measure, goods inflation rose to 1.2 per cent from 0.9 per cent and services inflation fell to 3.0 per cent from 3.3 per cent.
The unemployment rate was unchanged in July at 6.4 per cent, while productivity had “gradually picked up.”
The ECB said bank lending rates for firms had risen to 3.8 per cent in June and July from 3.6 per cent in May, following an interest rate increase in June.
Mortgage rates were unchanged in June and July at 3.5 per cent, while mortgage lending growth softened to 3.0 per cent in July from 3.1 per cent in May and June.
The ECB said it stood ready to adjust its instruments within its mandate “to ensure that inflation stabilises sustainably” at its target and to preserve the smooth functioning of monetary policy transmission — the process by which interest-rate changes feed through to borrowing costs and the wider economy.
