The European Central Bank has raised its main deposit rate by 0.25% to 2.25%, marking the first interest rate increase since 2023. The ECB became the first major central bank to raise rates in response to the war in Iran, as energy disruptions from the conflict have driven eurozone inflation to its highest level in nearly three years.
Governing Council member Primoz Dolenc stated the increase was necessary to keep prices in check while officials consider the broader implications of the conflict in the Middle East. Along with the rate hike, the ECB raised its inflation forecasts and cut its growth outlook. Looking ahead, officials are not ruling out a second increase at their next monetary-policy meeting, and financial markets are pricing in two further rises by next spring. Governing Council member Joachim Nagel indicated the bank is prepared to raise rates for a second straight meeting next month if the shock from the war requires it.
While the policy shift aims to rein in inflation after a long pause on rate changes, it has raised fresh concerns about economic growth. Some warn the decision threatens to tip a faltering economy into recession, especially if current price increases prove unsustainable. Additionally, critics suggest the move may not effectively curb inflation stemming from energy shortages.