ECB raises interest rates by 25 basis points amid inflation concerns

Christine Lagarde, President of the ECB, and Boris Vujčić, Vice-President, announced that the Governing Council has decided to raise the three key ECB interest rates by 25 basis points. This decision responds to inflation pressures driven by the conflict in the Middle East and ongoing geopolitical tensions.

The ECB’s staff projections forecast headline inflation averaging 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. Inflation excluding energy and food is projected at 2.5%, 2.6%, and 2.3% respectively for these years. The economic growth outlook has been revised upward to 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028, reflecting economic resilience.

The ECB emphasizes a cautious, data-dependent approach to future rate decisions, with no pre-commitment to a specific rate path. The Governing Council remains prepared to adjust monetary policy instruments as needed to ensure inflation stabilizes at the 2% target in the medium term.

Economic activity proved resilient in the second quarter, with broad-based growth across sectors and countries. Labour market conditions remain robust, with unemployment at 6.4% in July. Inflation increased to 3.3% in August, driven mainly by energy prices, which rose 14.3% in August. Underlying inflation measures remain broadly stable, and wage growth is modest.

Risks to growth are mainly to the downside, including potential disruptions from geopolitical conflicts and energy supply issues. Inflation risks are to the upside, with possible further increases in energy prices and supply chain disruptions. The ECB monitors these risks closely and will adjust policies accordingly.

Market interest rates have increased, with bank lending rates for firms rising to 3.8% in June and July. The ECB remains committed to its inflation target and will continue to use its instruments to maintain price stability.