The ECB raised interest rates for the first time in three months and updated its inflation forecast
The ECB raised interest rates by 25 basis points. Will it follow the Fed's lead? / Photo: Unsplash/Jakub Żerdzicki
On Thursday, September 10, the European Central Bank decided to raise its three key interest rates by 25 basis points—to 2.5%, 2.65%, and 2.9%—effective September 16. The decision was in line with analysts’ expectations, Bloomberg noted. The ECB tightened monetary policy for the first time since June; at its July meeting, it had left rates unchanged.
The ECB expects the conflict in the Middle East to continue to exert inflationary pressure, causing price growth to remain well above the 2% target for an extended period. According to its new forecast, inflation will average 3% in 2026, slow to 2.5% in 2027, and further to 2.1% in 2028. Core inflation, which excludes volatile food and energy prices, will be 2.5%, 2.6%, and 2.3%, respectively. The core forecast remains unchanged from the June projection for 2026 and has been revised upward for 2027 and 2028.
At the same time, the ECB revised upward its GDP growth forecasts for the eurozone for this year and next: to 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028. This reflects the eurozone economy’s stronger-than-expected resilience, the regulator noted.
“The outlook remains highly uncertain due to upside risks to inflation and downside risks to economic growth. “With regard to the energy shock, the updated scenarios compiled by staff reflect a wide range of possible outcomes for how growth and inflation might evolve under various assumptions about its intensity and duration, as well as its indirect and second-round effects,” the ECB wrote.
Major European stock indices fell during trading on Thursday, September 10. The Stoxx 600 index, which includes British stocks, lost about 0.35%; the German DAX fell 0.2%; and the French CAC 40 dropped by about 0.1%.
Next week, the U.S. Federal Reserve (Fed) will announce its decision on the interest rate. According to the FedWatch tool, traders estimate the probability of a quarter-percentage-point rate hike at 64.2%. This probability has risen compared to a week ago (49.4%) and a month ago (52.2%). The Consumer Price Index (CPI) for August, scheduled for release on September 11, will be a key factor for the Fed.
This article was AI-translated and verified by a human editor
