The European Central Bank has announced that it is raising its interest rates by 25 basis points to 2.25% and 2.65% and said that it forecasts headline inflation for 2026 to hit 3%. This is higher from the ECB’s baseline target of 2% and below.
Economic growth projection has been lowered to 0.8%.
Inflation has been rising due to the energy and supply shock of the war in Iran and ECB Chief Christine Lagarde previously said that the ECB is prepared to take gradual measures if inflationary measures persist.
ECB President Christine Lagarde said that the bank is not pre-determined with a particular rate path. The Labour market remains resilient despite the downward growth revision she said. Demand will decrease due to inflationary pressures as a result of higher energy shocks which will feed into supply chains especially food. Wage growth is expected to ease at the end of the year.
Public expenditure including defence and infrastructure expenditure is aiding economic growth.
However, the ECB President said that the energy-shock should be temporary.
Once again the ECB Chief reiterated to EU legislators to speed up legislation for the digital Euro and the banking single-market reforms.
The announcement can be found here.
Press conference is ongoing and can be found here. Transcript here.
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