- Decision
- Lower
- Rate change
- 25 bps
- deposit facility rate
- 2%
The European Central Bank’s Governing Council cut its three key rates by 25 bp, lowering the deposit facility rate to 2.00%, the main refinancing rate to 2.15% and the marginal lending facility to 2.40% with effect from 11 June 2025, saying inflation is now around the 2% medium-term target, underlying price pressures are easing and policy transmission remains firm. This marks the fourth consecutive 25 bp reduction since January, when the deposit rate was 2.75%. The central bank confirmed that APP and PEPP portfolios will continue to shrink through halted reinvestments. Staff project headline inflation at 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027, with core inflation seen drifting to 1.9% by 2026-27; GDP growth is forecast at 0.9%, 1.1% and 1.3% respectively, after a 0.3% expansion in Q1 and with unemployment at a record-low 6.2% in April, while annual growth in bank lending to firms picked up to 2.6% in April. A stronger euro and softer energy prices drive the downward inflation revisions, though persistent global trade tensions threaten exports and investment. The Governing Council will keep a data-dependent, meeting-by-meeting stance, refrains from pre-committing to a rate path and stands ready to deploy all tools, including the Transmission Protection Instrument, to secure durable convergence of inflation to 2% and safeguard monetary 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.