FRANKFURT, GERMANY / RankWire.AI / – In Frankfurt on September 16, 2026, the European Central Bank increased its three main interest rates by 25 basis points amid persistent inflation above target levels. The deposit facility rate now stands at 2.50%, up from 2.25%. The main refinancing rate has been raised to 2.65%, while the marginal lending rate is set to reach 2.90%. The new rates come into effect today. The ECB partly attributed sustained price pressures to rising energy costs linked to conflicts in the Middle East.
Eurozone headline inflation reached 3.3% in August, compared to 2.9% in July. Over the same period, energy inflation accelerated from 10.3% to 14.3%. Meanwhile, food inflation held steady at 1.2%. Inflation excluding energy and food decreased slightly from 2.5% to 2.4%, and services inflation eased from 3.3% to 3.0%. The data indicates that energy remains a significant source of inflationary pressure, even as several core inflation measures showed signs of moderation during the month.
Alongside its rate decision, the ECB issued updated economic forecasts. Staff predict that headline inflation will average 3.0% in 2026, dip to 2.5% in 2027, and then fall to 2.1% in 2028. The forecast for 2026 remains unchanged from the June estimate, but projections for 2027 and 2028 have been revised upward. Inflation excluding energy and food is expected to average 2.5% this year, 2.6% in 2027, and 2.3% in 2028.
Energy Prices Drive Up Inflation Expectations
ECB President Christine Lagarde stated that higher energy prices have pushed up the projected inflation trajectory. The bank anticipates that headline inflation will remain significantly above its 2% target into the first half of 2027. Subsequently, energy inflation is expected to slow and turn negative for a period during 2028. The ECB also forecasts that elevated energy costs will gradually influence food and core prices. According to its latest assessment, most measures of longer-term inflation expectations stay close to 2%.
The economic growth outlook has improved compared to previous forecasts. Staff now expect the euro area’s gross domestic product to grow by 0.9% in 2026, followed by increases of 1.4% in 2027 and 1.5% in 2028. These projections for 2026 and 2027 have been revised upward from June. The central bank highlighted the resilience of the economy in its updated assessment. In July, euro area unemployment stood at 6.4%, although employment and labor force growth continue to slow.
Cost of Borrowing Persists at Elevated Levels Across the Eurozone
Financial conditions still reflect the impact of previous monetary tightening on households and firms. In June and July, average bank lending rates for companies were at 3.8%, compared with 3.6% in May. The cost of corporate debt in the market reached 4.0% in July. Mortgage rates remained steady at 3.5% for both June and July. Meanwhile, annual growth in bank lending to companies increased to 4.4% in July, whereas mortgage lending growth slowed down to 3.0% during the same period.
The Governing Council indicated that future rate decisions will be data-dependent, assessing incoming economic and financial information, inflation trends, and the effects of monetary policy. It did not commit to a specific rate path. Asset purchases and pandemic emergency purchase portfolios continue to decline as securities mature and are not reinvested. The ECB reaffirmed its commitment to restoring inflation to its 2% target sustainably over the medium term.