ECB lifts deposit rate to 2.5 percent in latest move

The European Central Bank raised its deposit facility rate to 2.5 percent on Thursday. This marks the second rate increase since September 2023. The central bank also lifted the main refinancing rate to 2.65 percent and the marginal lending facility rate to 2.9 percent.

Inflation in the euro area climbed to 3.3 percent in August. This represents a rise from 2.9 percent in July. Energy costs were the primary driver, with annual prices surging by 14.3 percent.

Inflation projections revised upward

The ECB updated its staff projections for 2027 and 2028. The bank now expects headline inflation to average 3 percent in 2026. For 2027, the forecast stands at 2.5 percent, and for 2028, it is 2.1 percent.

These figures represent an upward revision compared to the June outlook. The 2026 projection remains unchanged from the previous assessment. The bank noted that Middle East conflicts continue to generate inflationary pressures.

Economic growth outperforms forecasts

The euro area economy expanded by 0.4 percent in the second quarter. This growth beat market estimates for the period. The central bank acknowledged the greater-than-expected resilience of the region's economic activity.

Consequently, the ECB revised its baseline growth projections upward. The bank now anticipates 0.9 percent growth in 2026. Growth is expected to reach 1.4 percent in 2027.

Policy stance remains cautious

The bank stated that the outlook remains highly uncertain. Risks point to upside pressure on inflation and downside pressure on growth. The ECB emphasized a meeting-by-meeting approach to future decisions.

According to GN auto markets/bonds: interest rates, the central bank is monitoring second-round effects from high energy prices. Current data shows that price spikes have not yet spread to other sectors. The ECB maintains readiness to adjust instruments to stabilize inflation.