The ECB raised rates to 2.25% last week and Chief Economist Philip Lane says another hike is possible if data warrants.
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ECB may raise rates again as inflation stays above 3%, Lane says
The ECB raised rates to 2.25% last week and Chief Economist Philip Lane says another hike is possible if data warrants.
The European Central Bank may raise its key interest rate again after lifting it to 2.25% this month, Chief Economist Philip Lane said Tuesday, as inflation remains stuck above 3% and energy prices have yet to normalize following the Middle East conflict.
"Whether we do more or stay at the new level will be dependent on incoming data," Lane said at a briefing in Frankfurt.
The ECB raised its deposit facility rate by 25 basis points to 2.25% on June 11, the first major central bank to tighten since the Middle East conflict began in late February. The main refinancing rate now stands at 2.40% and the marginal lending facility at 2.65%. Eurozone inflation accelerated to 3.2% in May from 3% in April, well above the ECB's 2% target. Lane said the pipeline shows "a year of inflation above 3%."
The decision to hike came before the U.S. and Iran announced an interim peace deal on June 14, which has lowered energy prices but not returned them to prewar levels. Lane described the deal as "welcome news" but cautioned that many details remain unsettled and it is unclear when the Strait of Hormuz will fully reopen. The ECB's updated projections show headline inflation averaging 3% in 2026, with growth slashed to just 0.8%.
Energy prices remain the dominant risk. Lane said futures market pricing now aligns more closely with the ECB's milder scenarios than its severe outcomes, but the central bank has mapped multiple paths depending on how high energy costs rise and how long they stay elevated. Core inflation, which strips out energy and food, is projected at 2.5% for both 2026 and 2027 before easing to 2.2% in 2028.
Lane declined to commit to any specific rate path, saying the ECB is deliberately "drawing a veil over where we might go in the future." That stance mirrors the approach of other central banks. The Bank of Japan warned Tuesday it may raise its key rate again after lifting borrowing costs to their highest level in 31 years, signaling that policymakers across developed economies remain wary of declaring victory over inflation.
The stakes for the eurozone are high. With inflation projected to average 3% this year and growth at just 0.8%, the ECB faces the risk of tightening into an economic slowdown — a scenario that would squeeze corporate margins and raise borrowing costs for households already grappling with elevated energy bills. The next ECB rate decision is scheduled for July 23, when updated staff projections will provide a fresh read on whether the inflation outlook has shifted.
This article is for informational purposes only and does not constitute investment advice.
[1] ECB May Raise Key Rate Again if Evidence Supports, Chief Economist Says - WSJ[2] ECB May yet Raise Key Rate Again if Evidence Points to Inflation Concerns, Chief Economist Says - WSJ[3] ECB may raise key rate again if evidence supports, chief economist says[4] ECB will be proactive against high inflation even after Iran deal, Lane says[5] European Central Bank paints a sobering picture of euro area growth and inflation
