ECB Raises Interest Rates Amid Resilient Euro Area Economy

The European Central Bank (ECB) has decided to raise its key interest rates by 25 basis points. The three main interest rates will be set at 2.50%, 2.65%, and 2.90% for the deposit facility, main refinancing operations, and marginal lending facility, respectively.

The ECB cites a resilient euro area economy as the reason for this decision, with economic growth projected to reach 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028. Labour market conditions remain robust, but inflation has increased to 3.3% in August, driven by energy price increases of 14.3%, compared to 10.3% in July.

The ECB is concerned about the outlook for inflation, which is projected to average 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. The Governing Council notes that it remains determined to see inflation stabilize at its medium-term target of 2.0%. To achieve this goal, the ECB is prepared to use various instruments, including the Transmission Protection Instrument, which allows for targeted purchases of sovereign bonds.