FRANKFURT, GERMANY / RankWire.AI / – European Central Bank increased its three primary interest rates by 25 basis points as inflation continued to stay above its target level. The deposit facility rate now stands at 2.50%, up from 2.25%. Meanwhile, the main refinancing rate has been raised to 2.65%, and the marginal lending rate will reach 2.90%. These new rates are effective starting September 16, 2026. The ECB attributed ongoing price pressures partly to higher energy costs linked to the conflict in the Middle East.
ECB President Christine Lagarde explained that rising energy prices have contributed to the upward revision of inflation projections. The bank anticipates headline inflation will stay significantly above its 2% target through the first half of 2027. Afterward, energy inflation is expected to ease and even turn negative during parts of 2028. The ECB also forecasts that increased energy costs will gradually influence food and core prices. According to its latest evaluation, most measures of longer-term inflation expectations remain close to 2%.
Improved economic growth outlook amid persistent inflation concerns
The central bank’s latest economic projections point to a stronger outlook than previously anticipated. Staff now expect the euro area gross domestic product to grow by 0.9% in 2026. The forecasts for 2027 and 2028 are 1.4% and 1.5%, respectively. These figures for 2026 and 2027 have been revised upward from the June estimates. The updated outlook reflects the ECB’s assessment of increased economic resilience. In July, euro area unemployment was recorded at 6.4%, while employment and labor force growth continued to slow.
Higher borrowing costs persist across the eurozone
Households and firms are still facing tighter financing conditions resulting from prior monetary policy tightening. For example, bank lending rates for companies averaged 3.8% in June and July, 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% in June and July. In July, annual growth in bank lending to companies increased to 4.4%, while mortgage lending growth slowed down to 3.0% during that period.
The Governing Council indicated that future interest rate decisions will hinge on incoming economic and financial data. It will review the inflation outlook, underlying price dynamics, and how monetary policy actions are influencing the economy. No fixed interest rate path has been committed to. Meanwhile, asset purchase programs, including pandemic emergency purchases, continue to decline as maturing securities are no longer reinvested. The ECB reaffirmed that its strategy remains focused on restoring inflation to its 2% target sustainably over the medium term.