Just weeks ago, markets were pricing in up to three more European Central Bank rate hikes for 2026. Now they’re not even expecting a full quarter-point move for the rest of the year.
What happened, and why it matters
On June 11, the ECB raised its three key interest rates by 25 basis points, its first hike since 2023. The deposit facility rate moved to 2.25%, main refinancing operations to 2.40%, and the marginal lending facility to 2.65%. Those new rates took effect on June 17.
The hike was a direct response to inflationary pressures driven by Iran-related tensions and disruptions in the Strait of Hormuz. Eurosystem staff projections in June forecast headline inflation at 3.0% and growth at a tepid 0.8%, numbers that made the case for tightening fairly straightforward.
Then oil prices fell sharply in late June as Middle East peace negotiations advanced.
