The July break is already behind us. European Central Bank raises interest rates by a quarter of a percentage point, bringing that on deposits at 2,50%Today's decision confirms investors' expectations. Price pressures fueled by the conflict in the Middle East are pushing for further tightening, while new forecasts point to more persistent inflation in the coming years.
The deposit rate will rise from 2,25% to 2,50%, the rate on the main refinancing operations will rise to 2,65%, and the rate on the marginal lending facility will reach 2,90%. The new levels will take effect on September 16. The 25 basis point increase follows the June increase and the July pause. This move, which investors considered virtually certain, is intended to ensure inflation returns to the 2% target in the medium term.
Middle East pushes prices, economy holds up, but uncertainty remains high
In the press release, the ECB explicitly links the decision to consequences of the war“The conflict in the Middle East continues to generate pressure on inflation,” warns the institute, according to which price dynamics should remain well above the target for an extended period.
New projections indicate aaverage overall inflation 3% in 2026, 2,5% in 2027, and 2,1% in 2028. Compared to the June estimates, the figure for this year remains unchanged, while those for the following two years have been revised upward. Even adjusting for energy and food components, a return to 2% still appears distant. Core inflation is forecast at 2,5% in 2026, 2,6% in 2027, and 2,3% in 2028.
On the growth front, estimates outline aEurozone economy more resilient than expectedThe ECB expects growth of 0,9% in 2026, 1,4% in 2027, and 1,5% in 2028, with an upward revision for the first two years. However, the outlook remains gloomy. exposed to the consequences of the energy shockThe intensity and duration of price increases, along with their transmission to the rest of the economy, could significantly alter the outlook. The risks indicated by the central bank point in both unfavorable directions, with potentially higher inflation and weaker growth.
No path has been decided yet for the next increases
The September tightening does not set an automatic course for the following months. The ECB reiterates that it will proceed meeting by meeting, assessing new economic and financial data, underlying inflation and the effects of monetary policy, “without being tied to a particular rate path”.
Further increases therefore remain possible, but they are not yet decided.
Lagarde: "Inflation will remain above target until the first half of 2027."
"The prospects remain very uncertain, with upside risks for inflation and downside risks for economic growth.” Christine Lagarde Thus, at the press conference in Berlin, she recalled the uncertainties surrounding the new tightening. The conflict in the Middle East and developments in the Russian war in Ukraine have further pushed up the outlook for energy prices. A pressure that, according to the ECB president, "will likely continue headline inflation well above target until the first half of 2027“A return to levels close to 2% is expected towards the end of next year, also thanks to the effects of higher rates.
Il the danger is that the price increases will spread to the rest of the economy"The longer energy prices remain high, the more likely they are to fuel broader inflation through indirect and second-round effects," Lagarde warns. For now, however, "wages are not showing a significant response to the energy shock."
The stability of economic activity remains supporting the picture. “The economy has proven to be resilient in the second quarter, despite the difficulties caused by the energy shock", underlines the president, indicating a widespread growth across countries and sectors. manufacturing benefits from increased public spending on defense and infrastructure, while the recovery of consumer confidence helps services. Artificial intelligence makes its mark on digital services, in business investment and exports.
On the next moves, Lagarde specifies that the Council did not address the possibility of further interventions"We didn't discuss any possible future path for rates at all, nor the likelihood of this or that decision," he said in response to a question about market expectations. "The entire discussion we had today focused on today's decision." ECB must evaluate intensity, duration, and propagation of a "mainly supply-side" shock, while maintaining the 2% inflation target. "Markets do what they have to do, and we do what we have to do," he adds.
The President also urges progress in European financial integration"The creation of the Capital Markets Union is a fundamental element." Regarding the digital euro, whose legal framework is entering the final phase of its process, he calls for an agreement on the single currency package to be reached "as quickly as possible." Regarding government interventions to address the energy shock, fiscal responses should be "temporary, targeted, and calibrated."
On his future on the possibility of leaving the ECB early to lead the World Economic Forum, Lagarde does not announce any news. “Whenever there is anything to report about me personally, you will be the first to know after my grandchildren. And there is nothing to report.”
Last update 15,34am
