ECB Raises Rates to Combat Inflation Fuelled by Oil Price Spike

The European Central Bank (ECB) has raised interest rates by a quarter percentage point to quell inflation fueled by high oil prices from the Iran war. The decision was made at a meeting held in Berlin, away from the ECB's Frankfurt headquarters.

Bank President Christine Lagarde stated 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 outlook remains highly uncertain with risks to the upside for inflation and to the downside for economic growth.

The ECB's benchmark rate now stands at 2.50%. The bank last raised rates in June and hit pause in July due to concerns about energy prices and their impact on inflation, which came in at 3.3% in August, above the target of 2%. Oil prices have risen above $100 per barrel due to threats against traffic through the Strait of Hormuz.

Higher rates are expected to cool inflation by making borrowing more expensive and reducing demand for goods, thereby easing pressure on prices. The ECB's move was seen as an attempt to prevent higher energy prices from feeding through to the broader economy.