ECB Raises Interest Rates to Combat Inflation Driven by Iran War
The European Central Bank (ECB) has raised interest rates for the second time this year to combat inflation, which has exceeded its 2% target due to surging energy costs. The move aims to tame an inflation rise driven entirely by higher oil and natural gas prices following the Iran war. The ECB's benchmark deposit rate is now at 2.5%, considered the upper end of the 'neutral' range.
The bank also lifted its economic growth projection to 0.9% for 2026 from 0.8% seen in June, and sees inflation averaging 3.0% this year and 2.5% in 2027. The ECB's President Christine Lagarde will hold a press conference at 1245 GMT.
High energy costs are expected to persist, with the conflict showing no signs of abating. Natural gas prices are also a growing worry as storage levels remain below historic norms ahead of the winter heating season.
The ECB's move has been widely anticipated and is seen as a signal that more rate hikes may follow later this year and in 2027. However, investors are taking a wait-and-see approach due to mixed signals from the economy and inflation data.