- Decision
- Raise
- Rate change
- 25 bps
- deposit facility rate
- 2.25%
The European Central Bank’s Governing Council raised its three key interest rates by 25 basis points on 11 June 2026, citing inflation pressures from the war in the Middle East and saying the move is robust across a range of scenarios for how the shock could affect the euro area medium-term outlook; after a 25 bp cut in June 2025 took the deposit facility rate to 2.00% and rates were then held unchanged through April 2026, the deposit facility, main refinancing operations and marginal lending facility rates will increase to 2.25%, 2.40% and 2.65% respectively from 17 June, while APP and PEPP portfolios continue to decline as maturing principal is no longer reinvested. In the new Eurosystem staff baseline, headline inflation is seen averaging 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028, with inflation excluding energy and food at 2.5% in 2026 and 2027 and 2.2% in 2028, while growth is projected at 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028, with inflation forecasts for 2026-27 revised up and growth forecasts for 2026-27 revised down from March because of a higher energy price path and a more pronounced hit from the war to commodity markets, real incomes and confidence. The ECB said the outlook remains uncertain, with upside risks to inflation and downside risks to growth, and reiterated that it will follow a data-dependent, meeting-by-meeting approach, base decisions on the inflation outlook, incoming economic and financial data, underlying inflation and transmission, and is not pre-committing to a particular rate path.
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.