• The European Central Bank raised all three key rates by 25 basis points, citing renewed inflation pressures and an upgraded inflation outlook.
  • The deposit facility now stands at 2.25%, the main refinancing rate at 2.40%, and the marginal lending facility at 2.65%.
  • Policymakers reiterated a data-dependent, meeting-by-meeting approach, with uncertainty around both inflation and growth.

The European Central Bank raised its three main interest rates by 25 basis points on Thursday, lifting the deposit rate to 2.25% and signaling continued vigilance against persistent price pressures. The move, widely anticipated by markets, comes amid renewed inflation concerns tied to energy costs linked to Middle East tensions and a revised upward inflation forecast for 2026-2027.

"Inflation is still too high, and we are determined to bring it back to our 2% target," ECB President Christine Lagarde said at the press conference, emphasizing that future decisions will hinge on incoming data rather than a predetermined path.

The decision reflects a balancing act for the central bank as it navigates sticky price growth, particularly in services and energy, against a backdrop of uncertain economic momentum. The ECB's revised projections show inflation remaining above target for longer, while growth forecasts were trimmed, highlighting the trade-off between containing prices and supporting the economy.

Market reaction was muted, with bond yields edging higher as traders digested the hawkish tilt. Analysts noted that the ECB's conditional guidance leaves the door open for further tightening if energy shocks persist. "The ECB is signaling that they will hold rates higher for longer," said one economist, requesting anonymity because they are not authorized to speak publicly. "The data-dependence mantra gives them flexibility, but the bias is still toward tightening."

Representatives from the ECB declined to comment beyond the official statement.

Correction: An earlier version of this article misstated the new refinancing rate. It is 2.40%, not 2.50%.