- Decision
- Lower
- Rate change
- 25 bps
- deposit facility rate
- 2.5%
The European Central Bank’s Governing Council cut its three key interest rates by 25 bp, lowering the deposit facility to 2.50%, the main refinancing rate to 2.65% and the marginal lending facility to 2.90% from 12 March 2025, saying updated staff forecasts confirm that the disinflation process is “well on track” and that monetary transmission has strengthened even as underlying price pressures ease. Following a similar 25 bp reduction in late January, the deposit facility rate is now down a cumulative 50 bp this year. The ECB reiterated that the APP and PEPP portfolios will continue to shrink as maturing securities are no longer reinvested. Eurostat’s flash estimate put February headline inflation at 2.4% year-on-year, while staff project headline CPI at 2.3% in 2025 and 1.9% in 2026, with core inflation seen at 2.2% and 2.0% respectively; growth forecasts were trimmed to 0.9% for 2025 and 1.2% for 2026 amid weak exports, subdued lending and high policy uncertainty, although rising real incomes and moderating wage growth are expected to support demand. Loan growth is picking up and bank lending rates eased to 4.2% for firms and 3.3% for mortgages in January, yet overall credit dynamics remain soft. The Council noted headwinds from global trade frictions and geopolitical tensions, including Russia’s war in Ukraine and conflict in the Middle East, which pose two-sided risks to both growth and inflation through energy and external demand channels. Policymakers reaffirmed a data-dependent, meeting-by-meeting approach, declined to pre-commit to a rate path and maintained readiness to adjust all instruments, including the Transmission Protection Instrument, to ensure inflation returns sustainably to the 2% medium-term 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.