The expected ECB rate rise has landed
The European Central Bank's June decision was largely priced in, and the expected move has now arrived. The ECB raised all three key interest rates by 25 basis points, taking the deposit facility rate to 2.25%, the main refinancing rate to 2.40% and the marginal lending rate to 2.65%, with effect from 17 June.
That makes the decision important, but not surprising. Markets had already been leaning heavily towards a quarter-point rise, so the more important question is what the move says about the policy path from here. The source framed the meeting as a test of whether the eurozone is moving closer to the adverse scenario the ECB described earlier in the year: higher inflation pressure, weaker growth and less room for policy comfort.
That is now the heart of the market debate. The rate rise may help defend inflation credibility, but it also tightens financial conditions at a moment when activity indicators are already soft.
New forecasts make the trade-off harder
The ECB's updated projections underline why this decision is uncomfortable. In its baseline scenario, the central bank now sees headline inflation averaging 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. Inflation excluding energy and food is projected at 2.5% in both 2026 and 2027, before easing to 2.2% in 2028.
At the same time, growth has been marked down. The ECB now expects the eurozone economy to expand by 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028, with the downward revision reflecting the impact of the war on commodity markets, real incomes and confidence.
