| Consensus | Consensus Range | Actual | Previous | |
| Refi Rate Change | 25bp | 25bp to 25bp | 25bp | 0bp |
| Refi Rate Level | 2.65% | 2.65% to 2.65% | 2.65% | 2.40% |
| Deposit Rate Change | 25bp | 25bp to 25bp | 25bp | 0bp |
| Deposit Rate Level | 2.5% | 2.25% to 2.5% | 2.5% | 2.25% |
Highlights
The European Central Bank’s decision to raise its three key interest rates by 25 basis points represents a renewed tightening of monetary policy in response to persistent inflationary pressures arising from the Middle East conflict. From 16 September 2026, the deposit, refinancing and marginal lending rates will increase to 2.50 percent, 2.65 percent and 2.90 percent, respectively.
The decision reflects concern that inflation will remain above the ECB’s 2 percent target for several years. Headline inflation is projected at 3.0 percent in 2026, moderating to 2.5 percent in 2027 and 2.1 percent in 2028. More importantly, core inflation is expected to remain elevated at 2.3 percent in 2028, suggesting that underlying price pressures may prove persistent.
The policy challenge is intensified by an uneven economic outlook. Although growth projections have been upgraded to 0.9 percent in 2026, 1.4 percent in 2027 and 1.5 percent in 2028, higher borrowing costs could weaken investment, consumption and credit demand. Meanwhile, the continued reduction of the APP and PEPP portfolios reinforces the restrictive policy stance.
In summary, the ECB is prioritising price stability while retaining flexibility. Its meeting-by-meeting approach is appropriate given the uncertain duration and economic consequences of the energy shock.
Market Consensus Before Announcement
The ECB has pretty much stated it will raise rates by 25 bp this time so the only mystery is whether they will go again at the next meeting.
Definition
The European Central Bank (ECB) sets monetary policy for all members of the Eurozone. The highest decision-making body is the Governing Council which comprises the six members of the Executive Board and the 20 presidents of member central banks. Policy meetings take place roughly every six weeks but, due to the sheer number of participants, a rotation system has been introduced so that the total number of votes is capped at twenty-one. The benchmark interest rate is the rate on the main refinancing operations (refi rate) which sits between the marginal lending facility rate and deposit rate. The ECB's primary objective is price stability which since July 2021 is based upon a symmetric 2 percent target for the annual inflation rate.