The European Central Bank has increased its key interest rates by 25 basis points to address inflation pressures, citing geopolitical risks and energy price shocks. The decision aligns with its medium-term inflation target of 2%.
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 aims to ensure inflation stabilizes at the 2% target in the medium term.
The decision responds to inflation pressures driven by the war in the Middle East and rising energy prices. The baseline projections estimate inflation at 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028. Inflation excluding energy and food is projected at 2.5% in 2026 and 2027, and 2.2% in 2028.
Economic growth is forecasted at 0.8% in 2026, 1.2% in 2027, and 1.5% in 2028, with downward revisions for 2026 and 2027 due to geopolitical tensions and energy costs. The outlook remains uncertain, with upside risks to inflation and downside risks to growth.
The ECB will monitor incoming data and follow a data-dependent, meeting-by-meeting approach for future policy decisions. The Governing Council emphasizes the importance of fiscal sustainability, reforms, and digital innovation to support growth and stability.
Financial conditions remain tight but resilient, with banking sector strength supporting stability. The ECB remains prepared to adjust its instruments to achieve its inflation target and ensure the smooth functioning of monetary policy transmission.
Further details are available in the full press release on the ECB website.
Source: ECB official website
