- Decision
- Lower
- Rate change
- 25 bps
- deposit facility rate
- 2.25%
The European Central Bank’s Governing Council cut all three key interest rates by 25 bp, lowering the deposit facility rate to 2.25%, the main refinancing operations rate to 2.40% and the marginal lending facility to 2.65% from 23 April 2025, citing a continued, broad-based fall in headline, core and services inflation and confidence that most underlying measures are converging sustainably on the 2% medium-term target as wage growth moderates and profits absorb part of cost pressures, even though euro-area growth prospects have weakened amid escalating trade tensions and tighter financial conditions. Building on 25 bp reductions in January and March, the move marks a third consecutive step down in the policy corridor this year. The ECB confirmed that APP and PEPP portfolios will keep shrinking through halted reinvestments and reiterated the availability of the Transmission Protection Instrument to counter disorderly market dynamics. March headline inflation eased to 2.2%, services inflation fell to 3.5%, unit labour costs slowed as compensation per employee growth eased to 4.1% in Q4 2024, and unemployment reached a euro-era low of 6.1% in February, though heightened trade friction is dimming the growth outlook. Risk-free rates have fallen, equity markets are volatile, corporate spreads are wider and the euro has firmed in recent weeks, while global trade tensions and geopolitical risks remain key external uncertainties that could pull growth lower and push prices in either direction. The Council reaffirmed its data-dependent, meeting-by-meeting approach, declined to pre-commit to a rate path and pledged readiness to adjust all instruments to secure medium-term price stability.
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.