ECB Hikes Rates Again Amid Middle East Energy Shock

The European Central Bank (ECB) raised interest rates for the second time this year to combat the impact of the Middle East energy shock on inflation. The ECB lifted its benchmark rate by a quarter percentage point to 2.5 percent, its highest level since March last year. This move was widely expected and follows a similar increase in June as policymakers responded to the energy shock triggered by the US war on Iran.

The conflict in the Middle East continues to drive up energy prices, with Brent international oil benchmark climbing back above $100 a barrel this week. Natural gas prices have also reached their highest level in more than three years, putting pressure on households and businesses in the eurozone. The ECB warned that inflation pressures remain high and that inflation is set to remain well above target for an extended period.

The central bank kept its inflation forecast for this year unchanged at 3 percent but raised it slightly for next year to 2.5 percent. Growth forecasts were also revised, with the ECB predicting 0.9 percent growth for this year and 1.4 percent for next year. The move has sparked concerns that further rate increases could weigh on the eurozone economy.