ECB Raises Key Rate to 2.5% Amid Geopolitical Uncertainty

The European Central Bank (ECB) has raised its key deposit rate by 25 basis points to 2.5% in response to surging energy prices and geopolitical tensions complicating the outlook for inflation and economic growth across the euro zone.

This decision marks the latest step in the ECB's tightening cycle, which began due to an inflation shock intensified by the war in the Middle East. Markets had fully priced in the increase ahead of the meeting, with a 100% probability of a 25-basis-point hike according to LSEG data.

The more critical question for investors is what comes next, as the ECB has repeatedly avoided committing to a predetermined path. However, with eurozone inflation accelerating and energy costs rising sharply, investors are increasingly debating whether the central bank will need to deliver several additional increases.