As expected (see EUROPE 13863/7), the Governing Council of the European Central Bank (ECB) decided, on Thursday 11 June, to raise the monetary institution’s three key interest rates by 25 basis points. The rates on the deposit facility, the main refinancing operations, and the marginal lending facility will therefore be set at 2.25%, 2.40%, and 2.65% respectively, with effect from Wednesday 17 June.
“The war in the Middle East is generating inflation pressures, and the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area”, ECB President Christine Lagarde said on Thursday afternoon at a press conference.
Speaking to journalists, Mrs Lagarde rejected the idea that this rate rise was driven by a need to preserve the Frankfurt institute’s credibility. The President stressed that the decision had been adopted unanimously by the Governing Council and that it fell fully within the ECB’s mandate to bring inflation back sustainably to its 2% medium-term target.
Returning to an analytical framework she had presented in March, Mrs Lagarde said the hypothesis of a “limited and short-lived” inflationary shock was now clearly ruled out. In her view, the euro area economy is now in an environment characterised either by a major but temporary energy shock, or by a more persistent shock liable to keep inflation above target for a prolonged period.
The President also said that Eurosystem staff had updated several macroeconomic scenarios, ranging from a ‘milder’ scenario to a ‘severe’ scenario, via an ‘adverse’ scenario, and that the 25 basis point rise decided on Thursday appeared justified in each of these cases.
“Even in the milder scenario, the 25 basis points cut is completely warranted and justified”, she said.
Outlook. With annual inflation estimated at 3.2% in May in the euro area (see EUROPE 13879/28), the ECB notes that the energy shock is starting to spread, notably through services prices and non-energy goods prices.
In addition, GDP growth forecasts have been revised downwards compared with March, with Eurosystem staff now expecting average growth of 0.8% in 2026, 1.2% in 2027, and 1.5% in 2028. Headline inflation, meanwhile, is expected to average 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028.
Mrs Lagarde gave no indication as to future decisions by the Governing Council, which will meet next on Wednesday 22 July.
The ECB President reiterated that decisions would continue to be taken “meeting-by-meeting”, on the basis of the available economic data, with no predetermined path for interest rates.
In her view, however, the 25 basis point rise decided on Thursday leaves the ECB “well positioned to navigate the uncertainty and the developments going forward” surrounding the inflation and growth outlook.
See the ECB Governing Council’s monetary policy statement: https://aeur.eu/f/maz (Original version in French by Bernard Denuit)