FRANKFURT, GERMANY / RankWire.AI / – The European Central Bank has raised its three main interest rates by 25 basis points amid persistent inflationary pressures. The deposit facility rate will now be 2.50%, up from 2.25%. Additionally, the main refinancing rate will increase to 2.65%, and the marginal lending rate will reach 2.90%. These new rates will come into effect on September 16, 2026. The ECB linked ongoing inflationary pressures partly to rising energy costs related to conflicts in the Middle East.
In August, inflation in the euro area hit 3.3%, an increase from 2.9% in July. Energy prices surged to 14.3% from 10.3% over the same period, while food inflation remained steady at 1.2%. Inflation excluding energy and food decreased slightly to 2.4% from 2.5%. Meanwhile, services inflation also declined, falling to 3.0% from 3.3%. These figures indicate that energy continues to be a significant source of inflationary pressure, even as several other underlying inflation metrics eased during the month.
Alongside its rate decision, the central bank published updated economic forecasts. Staff project headline inflation to average 3.0% in 2026, decreasing to 2.5% in 2027 and 2.1% in 2028. The 2026 forecast remains unchanged from the June outlook, but projections for 2027 and 2028 have been revised upward. Inflation rates excluding energy and food are expected to average 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028.
Energy Costs Drive Inflation Expectations Higher
ECB President Christine Lagarde stated that elevated energy prices have raised the projected trajectory for inflation. The bank anticipates that headline inflation will stay well above its 2% target into the first half of 2027. Afterward, energy inflation is expected to decline and potentially turn negative during parts of 2028. The ECB also predicts that higher energy costs will gradually influence food and core prices. Most measures of long-term inflation expectations remain near 2%, according to its latest assessment.
Economic growth outlooks have also been revised upward compared to previous forecasts. The staff now expects the euro area’s gross domestic product to grow by 0.9% in 2026, with projections of 1.4% in 2027 and 1.5% in 2028. These forecasts for 2026 and 2027 were increased from the June predictions, reflecting the ECB’s recognition of greater economic resilience. Unemployment in the euro area was 6.4% in July, while employment and labor force growth continue to slow.
Borrowing Rates Stay Elevated Across the Eurozone
Lending conditions remain tight, reflecting the effects of earlier monetary policy tightening on households and companies. In June and July, the average bank lending rate for corporations was 3.8%, up from 3.6% in May. The cost of market-based corporate debt reached 4.0% in July. Mortgage rates remained steady at 3.5% for both June and July. Meanwhile, annual growth in bank lending to companies increased to 4.4% in July, while mortgage lending growth slowed to 3.0% during the same period.
The Governing Council noted that future rate decisions will depend on incoming economic and financial data. It will evaluate inflation prospects, underlying price developments, and how monetary policy is impacting the economy. No preset interest rate path has been committed to. The ECB’s asset purchase and pandemic emergency purchase portfolios continue to diminish as maturing securities are no longer reinvested. The central bank reaffirmed that its policy aims to sustainably bring inflation back to its 2% target over the medium term.