The ECB raised interest rates for the second time since the outbreak of the war in Iran in February to deal with signs that inflation will continue to be significantly above 2%. On Thursday, interest rates on deposits were raised by 25 basis points to 2.5%, and the survey showed that almost all economists had made that expectation. The ECB has reiterated that it will not promise follow-up policy measures in advance and will make decisions at each meeting based on data released one after another. The ECB said in a statement: “The Middle East conflict continues to bring inflationary pressure, and inflation will be significantly higher than the target level for a long period of time. There is still a high degree of uncertainty about the outlook. There is an upward risk of inflation, and a downside risk to economic growth.” The interest rate hike on Thursday allowed Eurozone policymakers to take action ahead of their peers in dealing with the sharp rise in energy prices. This round of energy price increases have spawned the highest level of inflation in nearly three years. Traders expect the ECB to continue to raise interest rates, and market pricing indicates that there will be two more rate hikes by mid-2027. This is in contrast to the Federal Reserve and the Bank of England. The latter two have yet to tighten their monetary policies due to the war in the Middle East, and are likely to remain unchanged next week.

The ECB raised interest rates for the second time since the outbreak of the war in Iran in February to deal with signs that inflation will continue to be significantly above 2%. On Thursday, interest rates on deposits were raised by 25 basis points to 2.5%, and the survey showed that almost all economists had made that expectation. The ECB has reiterated that it will not promise follow-up policy measures in advance and will make decisions at each meeting based on data released one after another. The ECB said in a statement: “The Middle East conflict continues to bring inflationary pressure, and inflation will be significantly higher than the target level for a long period of time. There is still a high degree of uncertainty about the outlook. There is an upward risk of inflation, and a downside risk to economic growth.” The interest rate hike on Thursday allowed Eurozone policymakers to take action ahead of their peers in dealing with the sharp rise in energy prices. This round of energy price increases have spawned the highest level of inflation in nearly three years. Traders expect the ECB to continue to raise interest rates, and market pricing indicates that there will be two more rate hikes by mid-2027. This is in contrast to the Federal Reserve and the Bank of England. The latter two have yet to tighten their monetary policies due to the war in the Middle East, and are likely to remain unchanged next week.