ECB raises interest rates by a quarter point to 2.50%

The European Central Bank (ECB) decided on Thursday to raise interest rates by a quarter of a percentage point. The deposit rate rises from 2.25% to 2.50%, the main refinancing rate to 2.65%, and the marginal lending rate to 2.90%. Investors had expected the move with near certainty.

This is the second rate rise of the year, after the one in June. In July, the Frankfurt-based institution had left rates unchanged, but had already left the door open to a further move in September.

The ECB justifies the decision with the rise in inflation in the euro area, which has climbed well above the 2% target because of the ongoing conflict in the Middle East. In its monetary policy statement, the institution described the outlook as "molto incerte, con rischi al rialzo per l'inflazione e al ribasso per la crescita economica" (in English: "very uncertain, with risks to the upside for inflation and to the downside for economic growth"). The inflation estimate for this year remains at 3%, but forecasts for the following years have been revised upward: 2.5% in 2027 and 2.1% in 2028, still above the medium-term target.

The cost of credit

A rise in key interest rates typically translates into more expensive financing conditions for businesses and households: mortgages, loans and new public debt issuances become costlier. For euro area states with high public debt, the increase means growing interest costs, a factor that weighs on public budgets already under pressure.

For Switzerland and for Ticino, where a large share of economic exchange passes through the euro-franc exchange rate, the ECB's decisions remain a constant reference point. A wider rate gap between Frankfurt and Bern can affect the exchange rate and, in turn, the competitiveness of exporting companies and cross-border tourism. The Swiss National Bank conducts its own monetary policy, but it cannot ignore the ECB's decisions when assessing the franc's development.

It remains an open question how long the ECB will need to maintain a restrictive policy before inflation returns durably to its target, and at what cost in terms of economic growth and credit costs for the private sector.