The European Central Bank is raising its deposit facility rate by 25 basis points to 2.25%, marking the institution’s first interest rate hike since 2023. After months of holding steady, the shift signals that Europe’s central bankers have seen enough inflation data to change course.
The move comes after euro area inflation hit 3.2% in May 2026, with core inflation reaching 2.5%. Both figures blow past the ECB’s 2% target, and the culprit is familiar: energy prices, supercharged by geopolitical instability tied to the Iran conflict and disruptions in oil supply through the Strait of Hormuz.
From pause to pivot
The ECB held rates steady at its April 30, 2026 meeting, keeping the deposit facility at 2.00%, main refinancing operations (MRO) at 2.15%, and the marginal lending facility at 2.40%. That decision was unanimous among policymakers, but it wasn’t made without debate.
ECB President Christine Lagarde indicated that extensive discussions about a potential rate hike took place leading up to the April decision. The governing council ultimately chose patience, opting to wait for more data before pulling the trigger.
