ECB raises rates for the first time since 2023

Overview

Updated Jun 11

The European Central Bank cut interest rates for two years. On Thursday it reversed, raising its key deposit rate to 2.25% from 2.0%. It is the first hike since September 2023.

Borrowing costs now climb across the 20 countries that use the euro. Mortgages, business loans, and government debt all get more expensive. The trigger is an energy price surge tied to the war in Iran and disrupted Middle East shipping.

Why it matters

Higher ECB rates raise the cost of new mortgages and loans for 350 million people across the eurozone, just as energy bills are already climbing.

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Key Indicators

2.25%

ECB deposit rate

The new rate after a 0.25-point increase from 2.0%.

3.2%

Eurozone inflation (May)

Annual price growth, the highest reading since 2023.

10.9%

Energy price rise

Year-on-year jump in energy costs in May, the steepest since early 2023.

2.5%

Core inflation

Prices excluding food and energy, the highest in over a year.

Voices

Curated perspectives — historical figures and your fellow readers.

Ever wondered what historical figures would say about today's headlines?

People Involved

Christine Lagarde

President of the European Central Bank

Leading the ECB's turn from cutting to hiking

Organizations Involved

European Central Bank

Central Bank

Raised rates for the first time in nearly three years

The ECB sets interest rates for the 20 countries that use the euro.

Timeline

September 2023 June 2026

5 events Latest: June 11th, 2026 · 3 months ago

Tap a bar to jump to that date

June 2026
ECB raises rates to 2.25%
Latest Policy

The ECB lifts the deposit rate by 0.25 points to 2.25%, its first increase since September 2023. Lagarde calls future moves data-dependent.
June 11th, 2026
Inflation jumps to 3.2%
Data

Eurostat reports May inflation at 3.2%, up from 3.0%. Energy rose 10.9% and core inflation hit 2.5%, hardening the case for a hike.
June 2nd, 2026
April 2026
ECB holds but warns on war
Policy

The bank keeps the deposit rate at 2.0% after debating a hike. It warns that the Iran war threatens both growth and prices, and signals June is live.
April 30th, 2026
March 2026
Lagarde signals readiness to act
Statement

Lagarde says the ECB is prepared to raise rates even if the energy-driven inflation surge proves short-lived.
March 25th, 2026
September 2023
ECB's last hike before the pause
Policy

The ECB raises rates to a record high, the final move of its 2022-2023 tightening cycle. Rate cuts follow over the next two years.
September 14th, 2023

Scenarios

ECB hikes again at its next meeting

Possible Resolves by Q3 2026

Discussed by: FXStreet analysts; market pricing reported by CNBC

Markets entered the June decision pricing in several more hikes this year. If energy prices stay high and core inflation holds near 2.5%, the ECB follows June with another 0.25-point increase at its next scheduled meeting. A second hike would confirm a new tightening cycle rather than a one-off precaution.

June proves a one-off as energy prices ease

Possible Resolves by End of 2026

Discussed by: Vanguard economists; Bloomberg survey commentary

If a ceasefire or reopened shipping lanes pull oil back down, headline inflation falls and the second-round effects Lagarde fears fail to take hold. The ECB then holds at 2.25% through the rest of the year, treating June as insurance against a shock that passed.

ECB reverses and cuts as growth stalls

Unlikely Resolves by Q1 2027

Discussed by: Euronews; CNBC coverage of stagflation risk

The eurozone economy was already weakening before the energy shock. If higher rates and pricier energy tip growth into contraction while inflation fades, the ECB's downside-growth worry wins out. It would then cut rates back toward 2.0% or lower to support the economy.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

1973-1974 and 1979

1970s oil shocks and central banks

Two oil embargoes sent energy prices soaring and fed broad inflation across Western economies. Central banks hesitated, and price rises became entrenched in wages and expectations for years.

Then

Inflation stayed high while growth stalled, a mix later called stagflation.

Now

Central banks eventually raised rates sharply to break the cycle, causing deep recessions.

Why this matters now

Lagarde's fear of 'second-round effects' is the 1970s lesson: an energy spike can spread into the wider economy if a central bank waits too long.

July 2022 - September 2023

ECB's anti-inflation hiking cycle (2022-2023)

After years near zero, the ECB raised rates ten times in a row to fight inflation that peaked above 10%. The deposit rate climbed to a record 4%. The cause then was an energy shock too, driven by Russia's invasion of Ukraine.

Then

Borrowing costs surged and eurozone growth slowed sharply through 2023.

Now

Inflation fell back toward 2% by 2024, letting the ECB begin cutting rates.

Why this matters now

It shows how fast the ECB moves when an energy shock hits prices. June 2026 may be the opening move of a similar run.