ECB Governing Council Raises Key Rates by 25 Basis Points

The European Central Bank’s Governing Council decided on 10 September 2026 to raise the three key ECB interest rates by 25 basis points, taking the deposit facility rate to 2.50%. The ECB said the conflict in the Middle East continues to generate inflation pressures and that inflation is set to remain well above target for an extended period.

According to the ECB’s monetary policy decision, the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will increase to 2.50%, 2.65% and 2.90% respectively, with effect from 16 September 2026. The ECB stated that the decision underscores the Governing Council’s commitment to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term.

The increase follows the Governing Council’s monetary policy decision of 23 July 2026, at which it kept the three key rates unchanged at 2.25%, 2.40% and 2.65%. At that meeting, the ECB said the outlook for energy prices, while highly volatile, stood close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict in the Middle East. It said uncertainty remained high and the full inflationary impact of the energy shock had yet to play out, adding that the Governing Council was closely monitoring the intensity and duration of the shock as well as its indirect and second-round effects.

Updated Staff Projections

The baseline of the new ECB staff projections sees headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. For inflation excluding energy and food, the baseline foresees 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028. Compared with the June projections, the baseline for inflation in 2026 is unchanged, while the projections for 2027 and 2028 have been revised up.

The baseline projection for economic growth is 0.9% for 2026, 1.4% for 2027 and 1.5% for 2028. According to the ECB, this is an upward revision for both 2026 and 2027, mainly reflecting the greater-than-expected resilience of the euro area economy.

In the June 2026 projections, published on 11 June 2026, Eurosystem staff said inflation would remain elevated in the short term as a result of higher energy prices caused by the war in the Middle East. If oil prices decline in line with prices in the futures market, staff said, inflation should return to the 2% target in 2028, although the outlook was described as highly uncertain. The June exercise also projected weaker economic growth this year, as demand is dented by a decline in consumers’ purchasing power, higher uncertainty and weaker confidence, with growth expected to recover in 2027 and strengthen again in 2028. Eurosystem and ECB staff macroeconomic projections are published four times a year, in March, June, September and December.

The Governing Council assessed that the outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth. In relation to the energy shock, the updated scenarios prepared by staff illustrate the broad range of outcomes for how growth and inflation would evolve under different assumptions about its intensity and duration, as well as its indirect and second-round effects.

The ECB said the Governing Council remains well positioned to navigate the uncertainty caused by the conflict and will follow a data-dependent, meeting-by-meeting approach to determining the appropriate monetary policy stance. Interest rate decisions will be based on the Governing Council’s assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council stated that it is “not pre-committing to a particular rate path.”

Balance Sheet and Policy Instruments

The ECB said the asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.

The Governing Council said it stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2% target in the medium term and to preserve the smooth functioning of monetary policy transmission. The Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.

The President of the ECB will comment on the considerations underlying the decisions at a press conference starting at 14:45 CET on 10 September 2026 in Berlin, Germany. The monetary policy statement is scheduled to be available from 15:00 CET, with the staff projections scheduled for publication at 15:45 CET.