The ECB’s Governing Council decided to increase all three key interest rates by 25 basis points. As a result, effective from 17 June, the interest rates on the deposit facility, the main refinancing operations, and the marginal lending facility will rise to 2,25 percent, 2,40 percent, and 2,65 percent respectively.

The ECB reiterated its determination to ensure that monetary policy remains appropriately restrictive so that inflation stabilises at its medium-term target of 2 percent.

«The war in the Middle East is creating upward pressure on inflation,» the central bank said in its statement. «The decision to raise interest rates is robust across a range of scenarios illustrating how the shock could evolve and affect the euro area’s medium-term outlook.»

Higher Inflation Forecast

The ECB has revised its baseline inflation forecast upward. It now expects average headline inflation of 3,0 percent this year, compared with 2,6 percent in its March projections. Forecasts for 2027 and 2028 stand at 2,3 percent and 2,0 percent respectively. Core inflation, which excludes energy and food prices, is projected at 2,5 percent this year and next year, easing to 2,2 percent in 2028.

«This revision reflects a higher expected path for energy prices, which is anticipated to feed through to food, goods, and services inflation to some extent,» the ECB explained.

GDP Growth Under Pressure

The inflation outlook is also weighing on economic growth. Stronger effects of the conflict on commodity markets, real incomes, and confidence have prompted downward revisions to GDP growth forecasts for 2026 and 2027. In its baseline scenario, ECB staff now expect economic growth to average 0,8 percent in 2026, 1,2 percent in 2027, and 1,5 percent in 2028.

The ECB stressed that the outlook remains highly uncertain. «The overall impact of the war on medium-term inflation and growth will depend on the intensity and duration of the energy price shock, as well as the scale of its indirect effects and second-round impacts.»

Data-Dependent Approach

The central bank emphasised that it will continue to follow a data-dependent approach when determining the appropriate monetary policy stance and will make decisions on a meeting-by-meeting basis.

Whether, and how many, additional rate increases may follow this year remains a matter of debate among economists. «The weak economic environment complicates the ECB’s task,” said Valentino Guggia, economist at Migros Bank. “We therefore see limited scope for further rate hikes and expect at most one additional increase.»