Monetary policy decisions

Key Points:

• The ECB Governing Council has raised its three key interest rates by 25 basis points to combat inflation and aims to stabilize inflation at its 2% target in the medium term, with rates effective from 17 June 2026.
• Inflation projections have been revised upward for 2026 and 2027, with headline inflation expected to average 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028, partly due to increased energy prices linked to the war in the Middle East.
• Economic growth forecasts have been lowered for 2026 and 2027, reflecting the war's adverse effects on commodity markets, real incomes, and confidence, with growth expected at 0.8% in 2026, 1.2% in 2027, and 1.5% in 2028.
• The ECB emphasizes uncertainty in the outlook, noting upside risks to inflation and downside risks to growth, and will adopt a data-dependent, meeting-by-meeting approach to monetary policy without committing to a specific rate path.
• The ECB continues to reduce its asset purchase programmes at a steady pace and has the Transmission Protection Instrument available to address disorderly market conditions threatening monetary policy transmission.