ECB Raises Interest Rates to Combat Energy-Driven Inflation

The European Central Bank (ECB) raised interest rates for the second time this year to combat energy-driven inflation, which has surged due to the Iran war. The rate hike aims to quell price hikes in fuel-importing euro zone countries, where oil prices have risen above $100 a barrel.

Despite the move, inflation is expected to remain above 2% through to 2028, partly due to resilient economic activity. The ECB's decision has prompted traders to bet on further rate hikes, pricing in 60 basis points of increases by April 2027.

ECB President Christine Lagarde emphasized that the bank does not pre-commit to future moves and will focus on providing price stability. Economists believe this may be the last rate hike for now, but some see a risk of further tightening due to persistent inflation expectations.