The ECB raised its key policy rates by +25 bps to 2.25%, 2.40%, and 2.65% while projecting inflation at +3.0% YoY in 2026 and growth at +0.8% YoY, reflecting tighter policy amid higher energy-driven inflation and weaker growth outlook.

• The deposit facility rate was increased to 2.25%, the main refinancing rate to 2.40%, and the marginal lending facility to 2.65% (+25 bps), indicating a policy tightening response to elevated inflation risks.
• Headline inflation is projected at +3.0% YoY in 2026, +2.3% in 2027, and +2.0% in 2028, with upward revisions for 2026 and 2027, reflecting the impact of higher energy prices feeding into broader inflation.
• Core inflation (ex energy and food) is forecast at +2.5% YoY in both 2026 and 2027, and +2.2% in 2028, indicating persistent underlying price pressures above target in the near term.
• Economic growth is projected at +0.8% YoY in 2026, +1.2% in 2027, and +1.5% in 2028, with downward revisions for 2026 and 2027, reflecting the negative impact of higher energy costs on real incomes and confidence.
• The policy decision was described as robust across a range of scenarios, suggesting that tightening is justified even under varying assumptions about the evolution of the energy shock.
• Risks to the outlook are tilted to the upside for inflation and to the downside for growth, highlighting the asymmetric impact of the energy-driven shock on the economy.
• The ECB emphasized a data-dependent, meeting-by-meeting approach with no pre-commitment to a rate path, indicating flexibility in response to evolving inflation and growth dynamics.
• Balance sheet normalization continues, with APP and PEPP portfolios declining as reinvestments have ceased, maintaining a gradual tightening of financial conditions alongside rate increases.