The European Central Bank has increased its main deposit rate by 0.25%, raising it from 2% to 2.25%. This marks the first change in policy since 2023 and the first rate hike in almost three years, making the ECB the first major central bank to raise interest rates in response to the war in Iran.
The decision comes as the ECB moves to rein in inflation, which has reached its highest level in nearly three years due to energy disruptions and pressures caused by the war in Iran. This policy shift aims to tamp down prices after a long pause on rate changes.
In addition to the rate hike, the ECB raised its inflation forecasts and cut its growth outlook. Financial markets are currently pricing in two further rate rises by next spring.
However, the move has raised concerns about growth, with warnings that it could tip a faltering economy into recession. Critics also suggest the increase may not curb inflation stemming from energy shortages, particularly if current price increases prove unsustainable.