ECB Hikes Rates by 25 Basis Points Amid Ongoing Inflation Pressures

The European Central Bank (ECB) raised its key interest rates by 25 basis points in an effort to control inflation, which is expected to remain above target for an extended period. The deposit facility rate was increased to 2.50%, the main refinancing rate to 2.65%, and the marginal lending facility rate to 2.90%. ECB President Christine Lagarde said the decision aims to ensure inflation returns to its medium-term target of 2%.

Lagarde pointed out that the ongoing conflict in West Asia continues to fuel inflation pressures, with headline inflation projected at 3% in 2026 and 2.5% in 2027. Inflation excluding energy and food is expected to be 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028.

The ECB's staff projections show that the economic outlook remains highly uncertain, with inflation risks tilted to the upside and economic growth risks to the downside. Lagarde said headline inflation is expected to remain well above target into the first half of 2027, but will gradually feed through into core and food prices by the end of 2027.

The central bank also raised its growth projections for 2026 and 2027, citing greater-than-expected resilience in the euro area economy. The ECB expects eurozone growth to be 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028.