Overview
- The ECB raised key rates on June 11th, moving the deposit rate to 2.25%, the main refinancing rate to 2.40% and the marginal lending rate to 2.65%, with the changes taking effect on June 17th.
- Christine Lagarde argued the decision was driven by an energy supply shock from Middle East tensions that is feeding into broader price gains and lifting inflation excluding energy and food from 2.2% to 2.5%.
- The bank revised its outlook, projecting headline inflation of 3% for 2026, 2.3% for 2027 and 2% for 2028, and said future policy will be decided meeting-by-meeting based on incoming data rather than a preset path.
- The ECB trimmed 2026 growth to 0.8% while noting unemployment remains near historic lows and banks are well capitalised, and higher euro yields are already reshaping capital flows and weighing on speculative assets including crypto.
- Lagarde warned of wider risks to watch: IMF estimates that the renminbi is materially undervalued, which could heighten currency tensions, and the European Parliament committee’s approval of the digital euro advances a new euro-area payments option.