ECB Hikes Rates as Middle East Conflict Drives Inflation
The European Central Bank (ECB) has raised its three key interest rates by 25 basis points in response to ongoing inflationary pressures caused by the conflict in the Middle East. The ECB's governing council emphasized that it remains committed to stabilizing inflation at its 2% medium-term target.
According to the latest projections, headline inflation is expected to average 3.0% in 2026 before easing to 2.5% in 2027 and 2.1% in 2028. Inflation excluding energy and food was projected at 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028.
The ECB also raised its economic growth forecasts, with the euro area economy expected to expand by 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028. The central bank stressed that the economic outlook remains highly uncertain, with inflation risks tilted to the upside and economic growth risks to the downside.