ECB Hikes Rates as Iran War Fuels Inflation Fears

The European Central Bank (ECB) raised interest rates for the second time this year to combat rising inflation caused by the Iran war. The conflict has led to a surge in oil prices, with crude now trading above $100 per barrel.

Despite some growth concerns, the ECB expects the euro zone economy to expand by 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028. Inflation is forecast to remain above the 2% target for an extended period.

The ECB's decision was largely expected, with financial markets pricing in one more rate hike this year, followed by another or two next year. However, economists are divided on whether further tightening will be needed.