The European Central Bank raised interest rates by 25 basis points at its June 2026 meeting—the first hike since 2023—as policymakers reaffirmed their commitment to restoring inflation to the 2% medium‑term target. The decision comes amid rising energy costs and persistent inflation risks stemming from the conflict involving Iran and disruptions to oil shipments through the Strait of Hormuz. According to the ECB, the war in the Middle East is intensifying inflationary pressures, and the rate increase is justified across the range of scenarios used to assess its impact on the euro area outlook.
Reflecting these developments, the ECB revised its inflation projections higher. It now expects headline inflation to reach 3.0% in 2026 (up from 2.6%) and 2.3% in 2027 (up from 2.0%). Core inflation forecasts were also raised to 2.5% for both 2026 and 2027, compared with previous estimates of 2.3% and 2.2%, respectively.
At the same time, the ECB made a modest downward adjustment to its growth outlook for the euro area. It now projects real GDP to expand by 0.8% in 2026 (down from 0.9%) and by 1.2% in 2027 (down from 1.3%).
