ECB Raises Key Rates by 25 Basis Points, Warns Inflation Will Stay Above Target for Years

The European Central Bank raised its three key interest rates by a quarter-point on Thursday, resuming monetary tightening after a summer pause as it warned that inflation is set to stay above its 2% target for years despite weak euro-zone growth.

In a policy decision published Sept. 10, the ECB said, “The Governing Council today decided to raise the three key ECB interest rates by 25 basis points.” The new rates will take effect on Sept. 16. The deposit facility rate will rise to 2.50% from 2.25%, the main refinancing operations rate to 2.65% from 2.40%, and the marginal lending facility rate to 2.90% from 2.65%.

The ECB, which sets monetary policy for the 20 countries that use the euro, said the move reflected an inflation outlook that remains too high. It said the conflict in the Middle East continues to generate inflation pressures and that inflation is expected to remain above target for an extended period.

Updated ECB staff projections showed headline inflation, measured by the Harmonized Index of Consumer Prices, at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. That leaves inflation above the central bank’s target even at the end of the forecast horizon. Inflation excluding energy and food, a closely watched measure of underlying price pressures, was projected at 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.

The new forecasts were higher on inflation beyond this year than the ECB’s June projections, which had put headline inflation at 2.3% in 2027 and 2.0% in 2028, while leaving the 2026 estimate unchanged at 3.0%.

The ECB also modestly lifted its growth outlook. It now expects real gross domestic product growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028, compared with June forecasts of 0.8%, 1.2% and 1.5%, respectively. The projections underscore the balancing act facing policymakers as they try to curb inflation without choking off a sluggish economy.

Thursday’s move follows a 25-basis-point increase in June and a decision to leave rates unchanged on July 23, marking a return to tightening after one meeting on hold.

Higher ECB rates tend to feed through to borrowing costs across the euro area, affecting everything from bank loans to mortgages. But the central bank gave no signal that further increases are assured. “The Governing Council is not pre-committing to a particular rate path,” it said, adding that it will continue to follow a data-dependent, meeting-by-meeting approach.

The ECB also said its asset holdings under the APP and PEPP bond-buying programs are continuing to decline because the Eurosystem no longer reinvests principal payments from maturing securities. It added that its Transmission Protection Instrument, a backstop aimed at countering disorderly market moves that could disrupt policy transmission across the euro area, remains available.

ECB President Christine Lagarde was due to comment on the decision at a 2:45 p.m. CET press conference in Berlin, where the Governing Council was meeting.