BERLIN, GERMANY / RankWire.AI / – European Central Bank increased its three primary interest rates by 25 basis points on Thursday amid ongoing inflationary pressures within the euro area. The ECB highlighted that conflicts in the Middle East continue to exert upward pressure on prices across the region. As a result, the deposit facility rate will be raised to 2.50% from 2.25%. The main refinancing rate will go up to 2.65%, and the marginal lending rate will reach 2.90%. These new rates are set to come into effect on September 16, 2026.
inflation remains above the ECB’s medium-term target of 2%, with officials warning it could stay elevated for a prolonged period. August saw euro area headline inflation rise to 3.3% from 2.9% in July. Energy inflation climbed sharply to 14.3%, compared to 10.3% in July. Food inflation stayed steady at 1.2%. Meanwhile, inflation excluding energy and food decreased slightly to 2.4% from 2.5%, and services inflation fell to 3.0% from 3.3%.
ECB President Christine Lagarde indicated that rising energy prices have pushed the forecasted inflation path higher. The bank anticipates headline inflation will remain well above its target into the first half of 2027, with energy inflation expected to decline afterward and turn negative at some points in 2028. The ECB added that increased energy costs are likely to gradually influence core and food inflation. Most long-term inflation expectation measures continue to hover around 2%, according to the central bank’s latest evaluation.
ECB President Christine Lagarde further noted that economic growth forecasts have been upgraded compared to previous estimates. The ECB staff now projects growth rates of 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028 for the euro area economy. These forecasts for 2026 and 2027 have been revised upward from the June projections, primarily due to the economy’s unexpected resilience. The unemployment rate in the euro area stood steady at 6.4% in July, even as employment and labor force expansion slowed, and productivity gradually improved.
Interest rate increases influence borrowing and lending conditions
ECB President Christine Lagarde explained that borrowing costs have already felt the effects of earlier monetary tightening. Bank lending rates for corporations were 3.8% in June and July, up from 3.6% in May. The cost of market-based corporate debt reached 4.0% in July. Meanwhile, mortgage rates stayed at 3.5% during June and July. Lending to companies grew annually by 4.4% in July, whereas mortgage lending slowed to 3.0%, according to data presented by the ECB.
The Governing Council emphasized that future decisions regarding interest rates will be contingent upon incoming economic and financial information. It will also evaluate the inflation outlook, underlying price pressures, and how monetary policy transmits through the economy. No fixed path for rate hikes has been committed to. The ECB’s asset purchase and pandemic emergency purchase portfolios continue to decline as the Eurosystem ceases reinvesting principal from maturing securities. The central bank reaffirmed that its monetary policy remains focused on restoring inflation to a sustainable 2% level over the medium term.