ECB Hikes Deposit Rate to 2.5% Amid Energy Price Surge

The European Central Bank (ECB) raised its benchmark deposit rate by 25 basis points to 2.5% from 2.25%, a move widely anticipated by financial markets as energy prices surge to new highs.

The decision reflects the growing challenge facing ECB policymakers, who are grappling with inflationary pressures fueled by the U.S.-Iran conflict and weighing on the region's economic outlook.

ECB President Christine Lagarde warned of upside risks to inflation and downside risks to economic growth, while emphasizing that policymakers were not pre-committing to a particular rate path.

The central bank expects core inflation to average 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028, despite government borrowing costs climbing sharply in recent weeks.