European Central Bank raises key interest rates by 25 basis points

The European Central Bank’s Governing Council has raised its three key interest rates by 25 basis points, ERR reported. The changes will take effect on September 16.

The deposit facility rate will rise to 2.50 percent, the rate on main refinancing operations to 2.65 percent and the marginal lending facility rate to 2.90 percent.

A key interest rate set by a central bank serves as a benchmark for how much commercial banks pay to borrow money from it. It directly affects businesses’ investment decisions, households’ home loans and the returns on deposits. Lower rates generally encourage borrowing, investment and consumption.

According to the ECB experts’ latest baseline forecast, overall inflation is expected to average 3 percent in 2026, 2.5 percent in 2027 and 2.1 percent in 2028.

Excluding energy and food, inflation is forecast to average 2.5 percent in 2026, 2.7 percent in 2027 and 2.3 percent in 2028. Compared with the June forecast, the projection for 2026 is unchanged, while the forecasts for 2027 and 2028 have been revised upwards.

Economic growth is expected to reach 0.9 percent in 2026, 1.4 percent in 2027 and 1.5 percent in 2028. The forecasts for this year and next year have both been revised upwards, mainly reflecting greater-than-expected resilience in the euro area economy.

The ECB said the outlook remained highly uncertain, with upside risks to inflation and downside risks to economic growth. Updated scenarios prepared by ECB experts assess possible growth and inflation trends under different assumptions about the scale and duration of an energy shock, including its indirect and secondary effects.

The Governing Council’s interest-rate decisions will primarily depend on its assessment of the inflation outlook and related risks, incoming economic and financial data, underlying inflation dynamics and the effectiveness of monetary policy transmission.

The conflict in the Middle East continues to create inflationary pressure, with inflation expected to remain significantly above the ECB’s target for a longer period. The ECB said Thursday’s decision underscored the council’s aim of stabilising inflation at 2 percent over the medium term through monetary policy.