European Central Bank (ECB) Monetary Policy Decision summary

Monetary policy decisions and outlook

• Key ECB interest rates were raised by 25 basis points to address persistent inflation pressures, especially from the Middle East conflict, with a commitment to stabilize inflation at 2% in the medium term.

• Headline inflation is projected at 3% in 2026, 2.5% in 2027, and 2.1% in 2028, with core inflation slightly higher and projections revised up for 2027 and 2028.

• Economic growth forecasts were revised upward to 0.9% for 2026, 1.4% for 2027, and 1.5% for 2028, reflecting resilience in the euro area.

• The ECB will continue a data-dependent, meeting-by-meeting approach, not pre-committing to a specific rate path, and stands ready to adjust instruments as needed.

• Outlook remains highly uncertain, with upside risks to inflation and downside risks to growth.

Economic and inflation developments

• Growth in Q2 was broad-based, with manufacturing and services rebounding and labor markets remaining robust; unemployment held at 6.4%.

• Near-term growth outlook has improved due to resilient private consumption and public spending, with medium-term support from falling energy prices and strong labor markets.

• Inflation rose to 3.3% in August, driven by energy prices, while food inflation remained low at 1.2%; underlying inflation measures were broadly stable.

• Wage growth slowed, and rising productivity helped contain unit labor costs; longer-term inflation expectations remain anchored near 2%.

Risks and scenario analysis

• Upside risks to inflation stem from ongoing geopolitical conflicts, energy shocks, and potential supply disruptions, while downside risks to growth persist.

• Renewed trade tensions and extreme weather could further impact inflation and supply chains.

• ECB scenarios illustrate a range of outcomes based on energy price assumptions, with the current rate hike robust across all scenarios.