ECB Hikes Interest Rate Amid Ongoing Inflation Pressures
The European Central Bank (ECB) raised its key interest rate by 25 basis points on Thursday, responding to price pressures triggered by the Middle East conflict. The Governing Council voted to increase all three of its interest rates by the same amount, with the main refinancing operations (MRO) rate now at 2.65%. This is the first time the MRO has been this low since March 2025.
New projections from ECB staff indicate that headline inflation will average 3.0% in 2026, before easing to 2.5% in 2027 and 2.1% in 2028. Core inflation, which excludes energy and food items, is seen at 2.5%, 2.6%, and 2.3% over the next three years.
Despite showing 'greater-than-expected resilience', according to the ECB, the outlook remains 'highly uncertain' with risks to economic growth on the downside. The single currency economy is expected to expand by 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028.
The ECB emphasized that policymakers are not pre-committing to a particular rate path, saying 'the Governing Council remains well positioned to navigate the uncertainty caused by the conflict.' It will follow a data-dependent approach to determining monetary policy stance.