ECB Raises Rates Amid Persistent Inflation Fears

The European Central Bank (ECB) has raised its key interest rate by 25 basis points to address price pressures triggered by the conflict in the Middle East. The ECB's Governing Council voted to raise all three of its interest rates, taking the main refinancing operations rate to 2.65%, and the deposit facility and marginal lending facility to 2.50% and 2.90%, respectively.

The ECB staff have projected headline inflation to average 3.0% in 2026, before easing to 2.5% in 2027 and 2.1% in 2028. Core inflation will average 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.

ECB President Christine Lagarde described the decision to raise rates as a 'no-brainer', explaining that 'we believe that inflation will be longer lasting than we anticipated.'

The ECB's forecast for next year has been revised upward, with inflation predicted to reach 2.5% from an earlier estimate of 2.3%. The central bank added that policymakers were not pre-committing to a particular rate path.