The European Central Bank raised interest rates by 25 basis points, increasing the deposit facility rate to 2.25%, the main refinancing operations rate to 2.40%, and the marginal lending facility rate to 2.65%. The rate hike follows upward revisions to inflation forecasts, driven by higher energy prices linked to the ongoing war in the Middle East. The ECB now projects headline inflation to average 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028, with core inflation expected at 2.5% in 2026 and 2027 and 2.2% in 2028. Gold prices showed muted reaction, trading at €3,530.36 per ounce against the euro and $4,064.20 per ounce against the U.S. dollar, the latter marking the lowest level since November.
ECB Raises Interest Rates by 25 Basis Points
The European Central Bank increased interest rates for the central bank's deposit facility to 2.25%, the main refinancing operations to 2.40%, and the marginal lending facility to 2.65%. The rate hike was widely anticipated by market participants.
ECB Revises Inflation Forecasts Upward Through 2028
The central bank significantly raised its inflation projections based on new Eurosystem staff assessments. Headline inflation is forecast to average 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028. For inflation excluding energy and food, the baseline forecast sees an average of 2.5% in 2026 and 2027 and 2.2% in 2028. The ECB stated in its monetary policy statement that staff revised up the baseline projection for inflation in 2026 and 2027 compared with March, attributing the change to a higher path for energy prices expected to feed into food, goods, and services inflation.
Middle East War Drives Energy Price Pressures
The central bank noted that the ongoing war in Iran continues to drive energy prices higher and has created significant economic uncertainty. The ECB stated in its monetary policy announcement that "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."
Gold Holds Support Levels Against Euro and Dollar
The gold market saw little reaction to the ECB's rate decision. Spot gold last traded at €3,530.36 an ounce, relatively unchanged on the day. Gold's price action against the euro aligned with its performance against the U.S. dollar. Overnight, the yellow metal fell to its lowest level since November. Spot gold last traded at $4,064.20 an ounce, down 0.15% on the day.
FAQ
What interest rates did the ECB set in its latest decision?
The European Central Bank raised the deposit facility rate to 2.25%, the main refinancing operations rate to 2.40%, and the marginal lending facility rate to 2.65%, representing a 25 basis point increase across all three rates.
Why did the ECB revise its inflation forecasts upward?
The ECB revised its inflation projections higher for 2026 and 2027 compared with March due to a higher path for energy prices, which the central bank stated is expected to feed into food, goods, and services inflation. The ongoing war in the Middle East continues to drive energy prices higher and has created significant economic uncertainty.
How did gold prices respond to the ECB rate decision?
Gold prices showed muted reaction to the ECB's rate decision, trading at €3,530.36 per ounce against the euro with little change on the day. Against the U.S. dollar, spot gold traded at $4,064.20 per ounce, down 0.15% and marking the lowest level since November.
