ECB raises key rates by 25bp amid Middle East war

The Governing Council of the European Central Bank decided on June 11, 2026, to raise its three key interest rates by 25 basis points.

This move sets the deposit facility rate to 2.25 percent, the main refinancing operations rate to 2.40 percent, and the marginal lending facility rate to 2.65 percent, effective June 17, 2026.

The decision directly addresses inflation pressures arising from the war in the Middle East, which is expected to impact the medium-term outlook for the euro area.

According to the June 2026 Eurosystem staff macroeconomic projections, headline inflation is projected to average 3.0 percent in 2026, 2.3 percent in 2027, and 2.0 percent in 2028.

Inflation excluding energy and food is foreseen at 2.5 percent for both 2026 and 2027, and 2.2 percent in 2028.

These inflation projections for 2026 and 2027 have been revised upwards compared to March, primarily due to a higher path for energy prices.

Economic growth is now projected to average 0.8 percent in 2026, 1.2 percent in 2027, and 1.5 percent in 2028, marking a downward revision for 2026 and 2027.

This reflects a more pronounced impact of the war on commodity markets, real incomes, and confidence.

Despite growth in the first quarter of 2026, supported by domestic demand and exports, survey results indicate a slowdown, particularly in services.

The labor market remains resilient, with unemployment at 6.3 percent in April 2026, close to historical lows.

However, the outlook remains highly uncertain, with upside risks for inflation and downside risks for economic growth, depending on the intensity and duration of the energy price shock.