The ECB raises interest rates by 25 basis points; the deposit rate rises to 2.25%

The Governing Council of the European Central Bank has decided to raise the ECB’s three key interest rates by 25 basis points. Consequently, the interest rates on deposits with the central bank, on the main refinancing operations and on the marginal lending facility will be raised to 2.25%, 2.40% and 2.65%, with effect from 17 June 2026.

As stated in the press release, ‘The Governing Council is committed to conducting monetary policy in such a way as to ensure that inflation converges towards the 2% target over the medium term. In line with this commitment, it decided today to raise the ECB’s three key interest rates by 25 basis points. The conflict in the Middle East is generating inflationary pressures, and the decision to raise rates is well-founded given a range of scenarios outlining how the shock could unfold and affect the medium-term outlook for the euro area.”

“In the baseline scenario of the new projections by Eurosystem experts, - the statement continues - headline inflation is projected to average 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. Inflation excluding energy and food is projected to average 2.5% in 2026 and 2027 and 2.2% in 2028. Compared with the March exercise, our experts have revised upwards the inflation projections for 2026 and 2027 in the baseline scenario, mainly due to the higher trajectory of energy prices, which are expected to feed through to some extent to food, goods and services inflation. In the baseline scenario, economic growth is projected to average 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028. This represents a downward revision for 2026 and 2027, reflecting the more pronounced impact of the war on commodity markets, real incomes and business confidence.

The ECB also emphasises that ‘The outlook remains uncertain, with upside risks to inflation and downside risks to economic growth. The overall implications of the war for inflation and growth in the medium term will depend on the intensity and duration of the shock to energy prices, as well as the extent of its indirect and second-round effects. This uncertainty is also reflected in the range of inflation and growth figures in the new scenarios formulated for illustrative purposes by Eurosystem staff, which will be published alongside the projections on the ECB’s website.”

“With today’s decision,” the statement continues, “the Governing Council remains well placed to address the uncertainty caused by the war. To determine the appropriate monetary policy stance, it will closely monitor the situation and adopt a data-driven approach whereby decisions are taken on a meeting-by-meeting basis. In particular, the Governing Council’s decisions on interest rates will be based on an assessment of the inflation outlook and the risks associated with it, taking into account new economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission, without committing to a specific path for interest rates.”