ECB Lifts Deposit Rate to 2.5 Percent Amid Inflation Rise

The European Central Bank raised its deposit facility rate to 2.5 percent. This 25 basis point increase is the second move of the year. The main refinancing rate now stands at 2.65 percent. The marginal lending facility rate is set at 2.9 percent.

The bank cited rising inflationary pressures for the decision. Energy prices remain a primary driver of cost increases. The ECB revised its inflation projections upward for 2027 and 2028. It maintains a meeting-by-meeting approach for future moves.

Inflation Driven by Energy Costs

Euro area inflation reached 3.3 percent in August. This is an increase from 2.9 percent in July. Energy prices rose 14.3 percent on an annual basis. Prices for other goods remained stable. The ECB expects headline inflation to average 3 percent in 2026.

Projections for 2027 were revised up to 2.5 percent. The 2028 forecast is now 2.1 percent. The central bank notes risks to the upside for inflation. Geopolitical conflicts continue to generate pressure on prices. Inflation is expected to stay above target for an extended period.

Economic Growth Beats Expectations

The euro area economy grew by 0.4 percent in the second quarter. This figure exceeded previous market estimates. The ECB revised its growth outlook upward. It now expects 0.9 percent growth in 2026. The forecast for 2027 is 1.4 percent.

Analysts note the decision was not controversial. The future rate path remains complex to predict. The bank is monitoring second-round effects from energy prices. Survey data shows no significant transmission to core inflation yet. The ECB stands ready to act if conditions change.

Policy Context and Market Watch

This follows a 25 basis point hike in June. The last easing cycle cut rates by two points. The deposit rate fell from 4 percent to 2 percent. Inflation stayed near 2 percent for most of 2025. The current environment is described as highly uncertain.

GN markets/policy (en-US) reports that the ECB remains cautious. The bank is watching for downside risks to growth. Energy price spikes have not yet fed into other sectors. The outlook includes risks for both inflation and growth. The central bank prioritizes price stability in its strategy.