ECB Hikes Interest Rates Amid Ongoing US-Iran Conflict Pressures

The European Central Bank (ECB) has raised interest rates for the second time this year, as expected. The benchmark rate now stands at 2.5%, up from 2.25%. The decision was made in response to the ongoing war between the U.S. and Iran, which is putting pressure on prices.

The ECB's Governing Council noted that its baseline projections indicate inflation will reach 3% this year, followed by 2.5% in 2027 and 2.1% in 2028. However, core inflation is expected to remain higher, reaching 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028.

The ECB warned that outlooks are highly uncertain, with risks to the upside for inflation and to the downside for economic growth. The bank's staff concluded that the decision leaves the Governing Council well positioned to navigate the uncertainty caused by the conflict.