ECB Hikes Interest Rates as Iran War Drives Inflation Fears

The European Central Bank (ECB) raised interest rates for the second time in 2026, aiming to combat inflation triggered by the Iran war. The move comes as oil prices have surged back above $100 a barrel, sparking concerns about price hikes in the euro zone.

The ECB's policy rate was increased to 2.5% from 2.25%, with some economists predicting further hikes. In fact, traders now expect a 60 basis point increase by April 2027, up from around 51 basis points beforehand.

ECB president Christine Lagarde acknowledged that inflation is expected to stay above the bank's 2% goal until 2028, partly due to resilient economic activity. The ECB also revised its growth and inflation projections, reflecting a stronger economy and higher fuel costs.