ECB raises key interest rates by 25 basis points amid inflation concerns

Frankfurt, Germany. The European Central Bank raised its three key interest rates by 25 basis points on Thursday, citing continued inflationary pressures from the conflict in the Middle East. It said inflation was likely to remain above target for an extended period.

Inflation projections

The ECB’s governing council said the decision reflected its commitment to ensuring inflation stabilised at its 2 per cent medium-term target.

Under the latest ECB staff projections, headline inflation is expected to average 3.0 per cent in 2026, before easing to 2.5 per cent in 2027 and 2.1 per cent in 2028.

Inflation excluding energy and food is projected at 2.5 per cent in 2026, 2.6 per cent in 2027 and 2.3 per cent in 2028.

Compared with the ECB’s June projections, the forecast for headline inflation in 2026 was unchanged, while projections for 2027 and 2028 were revised upwards.

Growth outlook and risks

The ECB also raised its economic growth forecasts, with the euro area economy expected to expand by 0.9 per cent in 2026, 1.4 per cent in 2027 and 1.5 per cent in 2028.

The projections for 2026 and 2027 were revised upwards, mainly reflecting the greater-than-expected resilience of the euro area economy.

However, the central bank said the economic outlook remained highly uncertain, with inflation risks tilted to the upside and economic growth risks to the downside.

The ECB said updated scenarios relating to the energy shock showed a broad range of possible outcomes for growth and inflation, depending on the intensity and duration of the shock and its indirect and second-round effects.

The governing council said it remained well positioned to respond to uncertainty created by the conflict.