FRANKFURT, September 15 — The European Central Bank raised its three key interest rates by 25 basis points on 10 September, lifting the deposit facility to 2.50%, the main refinancing operations rate to 2.65% and the marginal lending facility to 2.90%, effective 16 September. The bottom line: the ECB’s own staff projections show inflation staying above its 2% target through 2028, and the Governing Council said the conflict in the Middle East continues to generate inflation pressures.
The new ECB staff baseline projections put headline inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. Inflation excluding energy and food is projected at 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.
Against June’s baseline, the 2026 inflation projection is unchanged, while the projections for 2027 and 2028 have been revised up. The Governing Council said inflation is set to remain well above its 2% target for an extended period, and that the rate decision underscores its commitment to setting monetary policy so inflation stabilises at that target in the medium term.
Growth revised up on euro area resilience
The same baseline sees economic growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028 — an upward revision for both 2026 and 2027, mainly reflecting the greater than expected resilience of the euro area economy. The ECB said the outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth.
On the energy shock, updated staff scenarios illustrate the broad range of outcomes for how growth and inflation would evolve under different assumptions about its intensity and duration, as well as its indirect and second-round effects.
No pre-commitment on the rate path
With the decision, the Governing Council said it remains well positioned to navigate the uncertainty caused by the conflict. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance, and said it is not pre-committing to a particular rate path. Rate decisions will be based on the Council’s assessment of the inflation outlook and the risks surrounding it, in light of incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission.
The ECB also said its APP and PEPP portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities. The Council said it stands ready to adjust all of its instruments within its mandate to ensure inflation stabilises at 2% in the medium term and to preserve the smooth functioning of monetary policy transmission.
The Transmission Protection Instrument remains available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries. The ECB, the central bank of the euro area, sets monetary policy for the euro and carries out work on financial stability and payments and market infrastructures, and publishes statistics and background information on the euro area economy. Its Governing Council is the main decision-making body for monetary policy.
ECB President Christine Lagarde commented on the considerations behind the decisions at a press conference on 10 September. Investors will note the next test of the Council’s meeting-by-meeting stance comes with the incoming inflation and growth data, and with how the Middle East conflict and the energy shock evolve from here.
