European Central Bank raises all three key interest rates by 25 basis points: deposit rate rises to 2.25%, 2026 inflation forecast raised to 3.0%

Main refinancing operations rate and marginal lending rate now stand at 2.4% and 2.65% respectively. The ECB had not changed rates since June last year, with the previous hike in September 2023. The reason — inflationary pressure due to the Middle East war and a spike in energy prices.

As reported by CCTV+, the European Central Bank (ECB) decided on Thursday to raise all three key interest rates by 25 basis points. The deposit facility rate, which is the rate through which the ECB signals its monetary policy stance, will be increased to 2.25%, while the main refinancing operations rate and the marginal lending facility rate will remain at 2.4% and 2.65% respectively, according to an ECB press release.

"The war in the Middle East is creating inflationary pressures, and the rate hike decision is justified given a range of scenarios that determine how the shock may develop and affect the euro area's medium-term outlook," the ECB statement said. The rate hike comes amid rising inflation in the euro area, mainly due to higher energy prices linked to the conflict with Iran.

In its latest projections published on Thursday, the ECB raised its inflation forecasts for 2026 and 2027 compared with its March projections. Headline inflation is expected to average 3.0% in 2026 and 2.3% in 2027, up from previous forecasts of 2.6% and 2.0% respectively. "The outlook remains uncertain, with risks tilted to the upside on inflation and to the downside on growth," the ECB said.

Euro area inflation rose to 3.2% in May from 3% in April, as energy prices jumped 10.9%. ECB President Christine Lagarde said that higher energy prices will push inflation even higher over the summer.

The ECB also lowered its economic growth forecasts for 2026 and 2027 compared to March, saying the euro area economy is expected to grow by 0.8% in 2026 and 1.2% in 2027.

Thursday's rate hike is the first increase in the ECB's key interest rates since September 2023. The central bank had not changed rates since June last year.

The European Central Bank is the main monetary authority for the euro area (the 20 EU countries that use the euro). A basis point is one hundredth of a percentage point (0.01%). Raising rates by 25 basis points is aimed at fighting inflation, which has accelerated due to higher energy prices following the escalation of the Middle East conflict. Higher rates usually cool inflation but also slow economic growth — and this trade off is now the central bank's biggest headache.

Inflation is like a fever: when it rises, you have to take medicine even if it makes you sleepy. The ECB is raising rates again, knowing full well that the eurozone economy may slow down. The war in the Middle East, surging gas and oil prices — external factors are calling the shots. But there is no choice: letting inflation run hot would erode the savings of millions of Europeans. So 25 basis points are not just a number. They are an attempt to walk a tightrope between price growth and recession.