ECB lifts key rates 25 bps, upgrades euro area growth forecasts

The European Central Bank on Thursday raised its three key interest rates by 25 basis points to counter inflationary pressures fueled by the Middle East conflict, taking the deposit facility rate to 2.5%, according to an official statement.

Benchmark rates rise to multiyear highs

The deposit facility rate will increase to 2.5%, the main refinancing operations rate to 2.65%, and the marginal lending facility rate to 2.90%, effective Sept. 16, 2026. Policymakers underscored their commitment to maintaining restrictive monetary conditions until inflation stabilizes at the 2% medium-term objective, though they acknowledged that price growth will likely remain elevated for an extended period.

Growth outlook upgraded despite price pressures

ECB staff now expect headline inflation to average 3% in 2026, 2.5% in 2027, and 2.1% in 2028, reflecting upward revisions for the final two years compared with June projections. Core inflation — excluding volatile energy and food prices — is forecast at 2.5%, 2.6%, and 2.3% over the same horizon, while real GDP growth projections were lifted to 0.9% for 2026, 1.4% for 2027, and 1.5% for 2028 on signs of greater economic resilience.

Asset purchases wind down

The bank confirmed that its Asset Purchase Programme and Pandemic Emergency Purchase Programme portfolios are declining at a measured pace as the Eurosystem no longer reinvests maturing principal payments. President Christine Lagarde is set to detail the reasoning behind Thursday's decisions at a news conference later in the day.