- Decision
- Lower
- Rate change
- 25 bps
- deposit facility rate
- 2.75%
The European Central Bank’s Governing Council cut its key rates by 25 bp, lowering the deposit facility rate to 2.75%, the main refinancing rate to 2.90% and the marginal lending facility to 3.15%, effective 5 February 2025, citing a continued, broadly on-track disinflation process and confidence that inflation will return to the 2% medium-term target later this year as wage pressures moderate and profits absorb cost increases. The policy stance remains restrictive and financing conditions tight, although recent cuts are gradually easing borrowing costs. December headline inflation rose to 2.4% from 2.2% in November, with services inflation still elevated at 4.0%, while euro-area GDP stagnated in Q4 and surveys point to ongoing manufacturing contraction despite a resilient labour market where unemployment held at 6.3%. Bank lending to firms grew 1.5% year on year in December amid renewed tightening in credit standards, mortgage rates slipped to 3.5% and loan demand remains subdued. APP and PEPP portfolios continue to decline as reinvestments have ceased, and all targeted longer-term refinancing operation funds were repaid on 18 December 2024, advancing balance-sheet normalisation. The ECB highlights downside growth risks from global trade frictions and geopolitical tensions that could also push up energy and freight costs, but pledges a data-dependent, meeting-by-meeting approach with no pre-committed rate path and stands ready to adjust all tools, including the Transmission Protection Instrument, to secure sustained convergence of inflation to target and safeguard policy transmission.
Rate evolution
From June 2025 to April 2026, the European Central Bank cut the deposit facility rate by 25 basis points to 2.00% in June and then held it unchanged, with the easing based on a better inflation outlook, moderating underlying inflation and wage growth, and effective monetary transmission, as inflation was around target and worries that trade tensions would tighten financing conditions had eased. Later holds reflected inflation staying at or near 2%, easing domestic price pressures and labour costs, anchored longer-term inflation expectations, and an economy that remained resilient thanks to the labour market, solid private sector balance sheets, easier financing conditions and, by December, stronger domestic demand, even as trade disputes, geopolitics and the stronger euro kept uncertainty elevated.
In subsequent decisions, the Governing Council again left rates unchanged but warned that the war in the Middle East had sharply raised energy prices, intensifying upside risks to inflation and downside risks to growth, before raising the three key ECB interest rates by 25 basis points on 11 June 2026, lifting the deposit facility rate to 2.25% as it judged that the war was generating inflation pressures. On 23 July 2026, it held the deposit facility rate at 2.25% and said energy prices remained highly volatile and well above pre-conflict levels, uncertainty was high and the full inflationary impact of the shock had yet to play out, while reiterating its data-dependent, meeting-by-meeting approach with no pre-committed rate path. On 10 September 2026, the Governing Council raised the three key ECB interest rates by a further 25 basis points, taking the deposit facility rate to 2.50% with effect from 16 September, as the conflict continued to generate inflation pressures and inflation was set to remain well above target for an extended period. New European Central Bank staff projections put headline inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, with the 2027 and 2028 forecasts revised up from June, while the Governing Council said risks remained tilted to the upside for inflation and to the downside for growth and retained its data-dependent, meeting-by-meeting approach.