ECB Rate Hike Spurs Further Eurozone Tightening Bets

European shares closed at two-month lows on Thursday after the European Central Bank raised interest rates by 25 basis points to 2.5% and warned of higher inflation due to a war-driven energy shock.

The pan-European STOXX 600 fell 0.7% to its lowest level since July 8, with most major regional markets trading in the red.

ECB President Christine Lagarde said 'risks to the inflation outlook are to the upside' and that price pressures could remain above target for an extended period, but emphasized the bank had not pre-committed to any future moves.

The ECB also lifted its 2026 economic growth projection to 0.9% from 0.8% seen in June and now expects inflation averaging 3% this year.