ECB Hikes Interest Rates to Combat Inflation Fuelled by Middle East Conflict

The European Central Bank (ECB) raised interest rates for the second time this year to combat rising inflation, citing energy price shocks from the ongoing Middle East conflict.

The ECB's benchmark rate has been increased by a quarter percentage point to 2.5%, its highest level since March last year.

This decision was made at an emergency meeting in Berlin, where ECB President Christine Lagarde signaled that inflation is likely to remain above target for an extended period.

Lagarde emphasized the resilience of the eurozone economy, which has withstood the energy shock better than expected. However, she also acknowledged that renewed Middle East fighting continues to generate inflation pressures.

Analysts have interpreted Lagarde's tone as hawkish, indicating a potential for further rate hikes to control inflation, which is currently projected to be 3% this year and 2027-2028.