BERLIN, GERMANY / RankWire.AI / – The European Central Bank increased its three main interest rates by 25 basis points on Thursday as inflationary pressures continue within the euro area. The ECB noted that ongoing conflicts in the Middle East are further driving up prices across the region. The deposit facility rate will now be 2.50%, up from 2.25%. The main refinancing rate will rise to 2.65%, and the marginal lending rate will reach 2.90%. These new rates will be effective starting September 16, 2026.
Inflation remains above the ECB’s medium-term target of 2%, and the central bank indicated it could stay elevated for a prolonged period. In August, euro area headline inflation increased to 3.3% from 2.9% in July. Energy inflation surged to 14.3%, compared to 10.3% in July. Food inflation stayed steady at 1.2%. Excluding energy and food, inflation eased slightly to 2.4% from 2.5%, while inflation in services declined to 3.0% from 3.3%.
Alongside the rate decision, the ECB released updated economic forecasts. The staff project headline inflation to average 3.0% in 2026, 2.5% in 2027, and then 2.1% in 2028. The forecast for 2026 remains unchanged from June, but projections for 2027 and 2028 have increased. Inflation excluding energy and food is expected to be 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028.
Inflation Expectations Rise as Energy Prices Grow
ECB President Christine Lagarde stated that higher energy prices have led to an upward revision of the inflation outlook. The central bank anticipates headline inflation to stay well above the target into the first half of 2027. Afterward, energy inflation is expected to decline and turn negative during part of 2028. The ECB also noted that rising energy costs should gradually influence core and food inflation levels. Most measures of long-term inflation expectations remain around 2%, based on the latest assessments by the central bank.
Projections for economic growth have also improved compared to earlier forecasts. The ECB now expects the euro area economy to expand by 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028. These forecasts for 2026 and 2027 have been raised from the June projections, mainly due to stronger-than-expected economic resilience. Unemployment in the euro area stayed steady at 6.4% in July, with employment and labor force growth slowing and productivity gradually improving.
Rising Rates Impact Lending and Borrowing Conditions
The costs of borrowing have already increased following earlier monetary tightening. Bank lending rates for companies reached 3.8% in June and July, up from 3.6% in May. The cost of corporate debt in the market was 4.0% in July. Mortgage rates remained at 3.5% during June and July. According to ECB data, annual growth in bank lending to companies rose to 4.4% in July, while mortgage lending growth slowed to 3.0%.
The Governing Council emphasized that future decisions on interest rates will depend on incoming economic and financial data. It will also evaluate the inflation outlook, underlying price pressures, and how monetary policy transmission is progressing. The council did not commit to a specific rate path. Its asset purchase programs and pandemic emergency purchases are still winding down as the Eurosystem ceases reinvestment of principal from maturing securities. The ECB reaffirmed that its monetary policy remains focused on returning inflation sustainably to the 2% target over the medium term.