ECB Raises Key Interest Rates by 25 Basis Points, Cites Middle East War and Higher Energy Prices

The European Central Bank raised its three key interest rates by a quarter-point on Thursday, saying inflation pressures linked to the war in the Middle East and higher energy-price assumptions in its latest forecasts warranted tighter policy.

“The Governing Council is committed to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term. In line with this commitment, it today decided to raise the three key ECB interest rates by 25 basis points,” the ECB said in a news release issued June 11.

Effective June 17, the ECB said its deposit facility rate will rise to 2.25%, its main refinancing operations rate to 2.40%, and its marginal lending facility rate to 2.65%. At its previous policy decision on April 30, the central bank had left those rates at 2.00%, 2.15% and 2.40%, respectively, confirming Thursday’s move as a renewed quarter-point tightening.

The ECB explicitly tied the increase to geopolitical risks feeding inflation. “The war in the Middle East is generating inflation pressures, and the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area,” it said.

Updated ECB staff projections released with the decision showed headline inflation averaging 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. Inflation excluding energy and food, a measure often used to gauge underlying price pressures, was projected at 2.5% in 2026, 2.5% in 2027 and 2.2% in 2028. The bank said those projections were revised up since March, mainly because of a higher assumed path for energy prices.

The move marks a shift from the ECB’s last meeting, when policymakers left rates unchanged on April 30. Thursday’s decision indicates the euro zone’s central bank now sees a stronger need to lean against inflation as it works to return price growth to its 2% medium-term target.

ECB rate changes affect borrowing costs across the 20-country euro area over time, influencing bank lending rates, mortgages and business loans, and indirectly shaping government financing conditions. By raising its benchmark rates, the central bank is seeking to cool demand and prevent higher energy costs and geopolitical shocks from becoming more broadly embedded in inflation.

The ECB also said the asset purchase program, or APP, and the pandemic emergency purchase program, or PEPP, are continuing to shrink because the Eurosystem is no longer reinvesting principal payments from maturing securities. It repeated that it was prepared to adjust its policy tools if needed. “The Governing Council 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 release said.

ECB President Christine Lagarde is scheduled to comment on the decision at a news conference later Thursday.