ECB Raises Interest Rates to Combat Iran War-Fueled Inflation

The European Central Bank (ECB) raised interest rates by a quarter percentage point to 2.50% in an effort to combat inflation caused by high oil prices from the Iran war.

The decision was made at a meeting held in Berlin, away from the bank's Frankfurt headquarters, and was supported by a stronger-than-expected economy that suggests businesses can weather higher borrowing costs.

ECB President Christine Lagarde said that 'the conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period.' She added that the bank would make future rate decisions meeting by meeting based on incoming data, but did not commit to any particular path for rates.

The ECB's move was seen as a hike to stay ahead of the curve, demonstrating the bank's high level of vigilance and attempting to prevent higher energy prices from feeding through to the broader economy. Carsten Brzeski, global head of macro at ING bank, said the decision was 'a demonstration of the ECB's high level of vigilance.'

The inflation rate in the eurozone came in at 3.3% in August, above the bank's target of 2%. Oil prices have risen above $100 per barrel due to lower tanker traffic through the Strait of Hormuz that are under threat of Iranian attack.