President Lagarde presents the latest monetary policy decisions – 11 June 2026

The Vice President, our new Vice President, and I welcome you to our press conference. The Governing Council is committed to setting monetary policy to ensure that inflation stabilizes at our 2% target in the medium term. In line with this commitment, we today decided to raise the three key ECB interest rates by 25 basis points. The war in the Middle East is generating inflation pressures, and the decision to raise rates is robust across a range of scenarios, mapping out how the shock might evolve and affect the medium-term outlook for the euro area. In the baseline of the new Eurosystem staff projections, headline inflation is expected to average 3% in '26, 2.3% in '27, and 2% in '28. For inflation excluding energy and food, the baseline foresees an average of 2.5% in '26 and '27, and 2.2% in '28. Compared with March, staff have revised up their baseline projection for inflation in '26 and '27 owing to a higher path for energy prices, which to some extent is expected to feed into food, goods, and services inflation. The baseline sees economic growth at an average of 0.8% in 2026, 1.2% in 2027, and 1.5% in 2028. This is a downward revision for 2026 and 2027, reflecting a more pronounced impact of the war on commodity markets, real incomes, and also confidence. The outlook remains uncertain with upside risks for inflation and downside risks for economic growth. The full implication of the war for medium-term inflation and growth will depend on the intensity and duration of the energy price shock, as well as the scale of its indirect and second-round effects. This uncertainty is also reflected in the broad range of outcomes for inflation and growth in the updated illustrative scenarios put together by Eurosystem staff. These will be published with the staff projections on our website. With today's decision, we remain well-positioned to navigate the uncertainty caused by the war. We will closely monitor the situation and follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of inflation outlook and the risks surrounding it in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path. The decision taken today are set out in a press release available on our website. So, I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions. Let me first look at the economic activity. Adjusting for a temporary factor in Ireland, the euro area economy grew in the first quarter supported by domestic demand and exports. Yet, the war in the Middle East is weighing on activity and surveys are pointing to a slowdown especially in services. Manufacturing has held up so far. In part, this is because firms have been building up stocks to cope with supply chain pressures. It also reflects higher defense spending. The labor market remains resilient. Unemployment at 6.3% in April remains close to historical lows. The first quarter saw additional jobs being created, although at a slower pace than in the last quarter in 2025. Labor demand has cooled further and firms and households expect the labor market to weaken. Looking ahead, staff now expects domestic demand to be weaker than they projected in March as the war weighs on confidence and higher energy costs erode real incomes. At the same time, household balance sheets are solid overall and consumption should remain the main driver of growth. Higher energy costs and lower confidence will dent private investment in the short run, but it should be underpinned by firms investing in new digital technologies. Government spending more on defense and infrastructure should continue to support public investments. These factors are expected to provide some cushioning against the fallout from the war. The Governing Council highlights the urgent need to strengthen the euro area economy while maintaining sound public finances. Fiscal sustainability is a crucial anchor for broader economic stability. Fiscal responses to the energy price shock should be temporary, targeted, and tailored, as emphasized in the European Commission 2026 European Semester Spring Package. Reforms to enhance the euro area's growth potential and accelerate the energy transition to reduce reliance on fossil fuels are more vital than ever. Completing the savings and investment union is key to funding innovation, supporting the green and digital transition, and improving productivity. The digital euro and tokenized wholesale central bank money will enhance Europe's strategic autonomy, competitiveness, and financial integration, and will boost innovation in payments. It is thus essential to swiftly adopt the regulation on the establishment of the digital euro. Simplifying and harmonizing rules across the EU single market will help European firms grow faster. Let me now look at inflation. Inflation rose to 3.2% in May from 3% in April. Energy price inflation ticked up to 10.9% in April while food price inflation fell from 2.4% to 2%. Inflation excluding energy and food picked up to 2.5% from 2.2% in April as goods inflation edged up to 0.9% and services inflation increased from 3% to 3.5%. Domestic cost pressures eased in the first quarter supported by slower growth in wages and profits. The ECB's wage tracker and surveys on wage expectations continue to indicate that wage growth should ease over the year. However, it is becoming more expensive for firms to source other inputs and they therefore expect to put up their selling prices. Moreover, some indicators of underlying inflation have already been driven higher by the energy shock. Inflation expectations over shorter horizons remain well above levels before the outbreak of the war in the Middle East. At the same time, most measures of longer-term inflation expectations stand at around 2%, supporting the stabilization of inflation around target in the medium term. The increase in energy prices will lift inflation further over the summer and keep it well above target into the first half of 2027. It will also have an impact on food, goods, and services inflation. Inflation should then return to target in the second half of '27, supported by falling energy prices and slower increases in other prices. However, the war in the Middle East remains a major source of uncertainty. And the longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects. We will therefore closely monitor the size and persistence of the energy price increase and how it feeds through to price and wage setting, inflation expectations, and overall economic dynamics. Turning now to the risk assessment. The risks to the growth outlook are to the downside, mainly owing to the war in the Middle East, which has added to the volatile global policy environment. Prolonged disruption of energy supplies could increase energy prices further and for longer than currently expected. These factors would erode real incomes even more and make firms and households more reluctant to invest and spend. The drag on growth would intensify if the closure of major shipping routes were to cause acute shortages of key inputs that forced euro area firms to curtail output. A worsening of global financial market sentiment or a tighter supply of credit could dampen demand. Additional frictions in international trade could also further disrupt supply chains, reduce exports, and weaken consumption and investment. Other geopolitical tensions, in particular Russia's unjustified war against Ukraine, remain a major source of uncertainty. By contrast, growth could turn out to be higher if the economy and energy markets were to adapt more quickly than expected to the disruption caused by the war in the Middle East or if the war was resolved promptly and sustainably. Moreover, planned defense and infrastructure spending reforms to enhance productivity and euro area firms adopting new technologies may drive up growth by more than expected. A deeper integration of the single market would also boost growth beyond current expectations. The risks now to the inflation outlook are to the upside. If energy prices were to rise by more and for longer than currently expected, euro area inflation would increase further. This could be reinforced and become more persistent if higher energy prices were to spill over by more than expected to other prices and to wages, if longer-term inflation expectations were to rise in response, or if global supply chains were disrupted more broadly. Ongoing trade tensions could also give rise to more fragmented global supply chains, curtail the supply of critical raw materials, and worsen capacity constraints in the euro area economy. Extreme weather events and the unfolding climate and nature crisis more broadly could drive up food prices by more than expected. By contrast, inflation could turn out to be somewhat lower if the economic effects of the war in the Middle East prove to be more short-lived than currently expected or if indirect or second-round effects prove less pronounced than anticipated. More volatile and risk-averse financial markets could weigh on demand and thereby lower inflation as well. So looking now at the financial and monetary conditions. Financial conditions are broadly unchanged since our last meeting but remain tighter than before the war. The cost of issuing market-based debt rose to 4% in April from 3.9% in March. Bank lending rates for firms remained at 3.6% in April and mortgage rates at 3.4%. The annual growth rate of bank lending to firms increased to 3.4% in April from 3.2% in March while the growth rate of corporate bond issuance rose to 4.6%. Mortgage lending in April again grew by 3%. In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between monetary policy and financial stability. Euro area banks are resilient, supported by strong capital and liquidity ratios, solid asset quality, and robust profitability. However, a sudden, sharp drop in asset prices, potentially amplified by the non-bank financial sector and deteriorating asset quality, particularly in energy and trade sensitive sectors, would pose risks to financial stability. These risks increase the longer the current geopolitical conflict lasts. Macroprudential policy remains the first line of defense against the buildup of financial vulnerabilities, enhancing resilience, and preserving macroprudential space. So, in conclusion, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points. We are committed to setting monetary policy to ensure that inflation stabilizes at our 2% target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it in light of the incoming economic and financial data, as well as the dynamics of underlying inflation, and the strength of monetary policy transmission. We are not pre-committing to a particular rate path. In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilizes sustainably at our medium-term target, and to preserve the smooth functioning of monetary policy transmission.