ECB Lifts Rates for Second Time as Iran War Drives Inflation
The European Central Bank (ECB) has increased interest rates for the second time since the Iran war broke out in February, responding to signs that inflation is set to stay well above 2%. The deposit rate was lifted by a quarter-point to 2.5% on Thursday, as predicted by almost all economists in a Bloomberg survey.
The ECB reiterated that it won't pre-commit to further steps, deciding instead one meeting at a time as data arrive. 'The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period,' it said in a statement.
Thursday's move puts euro-area policymakers further ahead of their peers in reacting to the energy-price surge that's produced the fastest inflation in almost three years. Traders see the ECB doing more, pricing two further hikes by mid-2027.
The ECB's decision was guided by fresh projections showing inflation averaging 3% this year before slowing to 2.5% in 2027 and 2.1% in 2028. After economic growth in the euro zone jumped in the second quarter, the full-year forecast was upgraded to 0.9%.