European Central Bank account shows unanimous support for 25 basis point rate increase as energy shock persists

The European Central Bank published the account of its September monetary policy meeting, showing that all Governing Council members supported raising the three key interest rates by 25 basis points. The deposit facility rate increased to 2.50% as higher energy prices worsened the inflation outlook, while the euro area economy remained resilient enough to absorb tighter policy. Members agreed to retain a data dependent, meeting by meeting approach without signaling whether further increases would follow. The September staff projections put headline inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, with the latter two forecasts revised upward from June. Core inflation was projected to remain above 2% throughout the forecast horizon. Members judged inflation risks to be tilted upward because the Middle East conflict, developments in Russia’s war against Ukraine, low European gas storage and constrained refining capacity could prolong the energy shock and strengthen its transmission to food, other prices and wages. However, indirect effects remained contained, no material second round effects had emerged and longer term inflation expectations remained around 2%. Growth forecasts were raised to 0.9% for 2026 and 1.4% for 2027, with the 2028 forecast unchanged at 1.5%, reflecting resilient consumption and public spending. Members nevertheless assessed growth risks as tilted downward because further energy disruption, tighter global financial conditions and renewed trade tensions could weaken real incomes, investment and exports. Monetary policy transmission remained orderly, although higher market rates, euro appreciation and softer mortgage activity were already restraining parts of demand.