ECB Raises Rates Again as Inflation Concerns Fuel Further Tightening
The European Central Bank (ECB) raised interest rates for the second time since the US-Iran conflict began, citing inflation concerns that are likely to persist. Germany's 10-year Bund yield surged above 3.45%, reaching its highest level since April 2011, amid a renewed oil price rally and escalating Middle East tensions.
The ECB maintained its 2026 inflation forecast at 3.0% but increased projections for 2027 and 2028 to 2.5% and 2.1%, respectively. GDP growth forecasts were also upgraded to 0.9% for 2026 and 1.4% for 2027, with the 2028 forecast remaining unchanged at 1.5%. The renewed energy-price pressures are fueling inflation expectations, with Brent crude hitting $105 a barrel and European gas prices reaching fresh three-and-a-half-year highs.
Markets are now pricing in another ECB rate hike by December, with further tightening expected in 2027. The ECB's decision reflects its commitment to controlling inflation despite the economic uncertainty caused by the ongoing conflict.