After spending the better part of two years making borrowing cheaper, the European Central Bank is about to pump the brakes. The ECB’s June 11 policy meeting is widely expected to deliver a 25 basis point rate hike, lifting the deposit facility rate from 2.00% to 2.25%.
It would be the first rate increase since 2023. And the euro is already responding, firming up against a dollar that, for once, looks content to sit quietly in the corner.
Why the ECB is shifting gears
Eurozone inflation accelerated above 3% in May, driven in large part by soaring energy prices tied to the ongoing conflict in Iran and the broader Middle East. ECB staff have revised their headline inflation projection for 2026 upward to 2.6%.
This reversal is particularly notable given how aggressively the ECB had been cutting. The central bank slashed its deposit rate by a cumulative 200 basis points since mid-2025, bringing it down to the current 2.00% level. The main refinancing operations rate currently sits at 2.15%, with the marginal lending facility at 2.40%.
