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June 11, 2026EUROPEAN CENTRAL BANK MONETARY POLICY The European Central Bank (ECB) announced today that it would raise the three key ECB interest rates. The interest rates on the deposit facility, main refinancing operations and the marginal lending facility will be at 2.25%, 2.40%, 2.65% respectively.
The European economy grew in Q1 of 2026, adjusted for a temporary volatility in Ireland, driven by strong domestic demand and exports. Manufacturing has held up so far supported by firms building up stocks to cope with supply chain pressures. This growth also reflects higher defence spending. Baseline projections for economic growth are 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028. This is a downward revision from previous forecast based on high commodity prices impacted by continued war.
High energy costs are expected to weigh on real income, but household balance sheets are solid, and consumption is expected to remain strong. Low confidence and high energy costs will reduce investments in the short term. Governments spending on defence and infrastructure should continue to support public investment.
Unemployment was 6.3% in April, which remains close to historical lows. Q1 2026 saw an increase in job creation, though at a slower pace than in Q4 2025. Labour demand has cooled further, and firms and households expect the labour market to weaken.
Inflation rose to 3.2% in May, from 3.0% in April, with energy prices up 10.9%. Food price inflation was up to 2.0% in May, down from 2.4% in April. Excluding food and energy, inflation was down to 2.5% in May, from 2.2% in April. Inflation expectations over shorter horizon have remained above levels prior to the war in the Middle East, but in medium to long term, inflation is expected to return to 2% target. New headline inflation projections average 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028. Inflation excluding energy and food is projected to average 2.5% in 2026 and 2027, and 2.2% in 2028.
The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth. The war in the Middle East adds significant volatility to the global policy environment. Prolonged time could increase energy prices further and for longer. These factors would erode real incomes even more and make firms and households more reluctant to invest and spend. Additional frictions in international trade could also further disrupt supply chains, reduce exports and weaken consumption and investment.
The asset purchase programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests principal payments from maturing securities.
The Governing Council notes it is determined to see inflation stabilise at its 2.0% medium-term target. The Transmission Protection Instrument is also available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area.
Source: European Central Bank: Monetary policy decisions (Press Release); Monetary Policy Statement (Press Conference); Eurosystem staff macroeconomic projections for the euro area, June 2026
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