ECB raises interest rates by 25 basis points amid inflation pressures

Christine Lagarde, President of the ECB, and Boris Vujčić, Vice-President of the ECB, announced that the Governing Council has decided to raise the three key ECB interest rates by 25 basis points.

The decision reflects ongoing inflation pressures driven by the conflict in the Middle East and geopolitical tensions, which keep inflation well above the 2% target for an extended period.

ECB staff projections forecast headline inflation at 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. Inflation excluding energy and food is projected at 2.5%, 2.6%, and 2.3% respectively for these years. Economic growth is expected to be 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028, reflecting resilience in the euro area economy.

The outlook remains uncertain, with upside risks to inflation and downside risks to growth, mainly due to geopolitical conflicts and energy supply disruptions. The ECB will continue to follow a data-dependent, meeting-by-meeting approach for monetary policy decisions, without pre-committing to a specific rate path.

Economic activity proved resilient in the second quarter, with broad-based growth across countries and sectors, supported by increased defense and infrastructure spending, digital services, and a strong labor market. Near-term growth outlook has improved, supported by private consumption and public spending. Longer-term growth requires structural reforms and sound public finances.

Inflation increased to 3.3% in August, with energy prices rising sharply due to refining margins and commodity prices. Inflation excluding energy and food edged down slightly. Wage growth remains modest, and inflation expectations are around 2% in the long term. Energy prices are expected to stay elevated into the first half of 2027, then decline, aiding inflation stabilization.

Risks to growth are mainly downside, including energy supply disruptions, financial market volatility, and trade tensions. Upside inflation risks include further energy price increases and supply chain disruptions. The ECB remains committed to adjusting instruments as needed to ensure inflation stabilizes at the target.

The ECB’s decisions are published in a press release available on their website. The Governing Council emphasizes its readiness to respond to evolving economic conditions to maintain price stability.