The European Central Bank (ECB) raised its key interest rate by 25 basis points on Thursday. The benchmark rate now stands at 2.5%. Policymakers linked the decision to surging inflation driven by the conflict between the United States and Iran. The ECB warned that the war is fueling price pressures and expects inflation to remain above target for an extended period.
Energy markets rallied as supply fears intensified. The EU Gas Index surged 2.4% to over €81, marking its highest level since late 2022. Brent crude oil futures rose above $102 a barrel. Geopolitical tensions have severely disrupted shipping through the Strait of Hormuz.
The ECB adjusted its 2026 growth forecast to 0.9%. It now projects inflation to average 3.0% for that year. The central bank maintained a hawkish tone due to the energy price shock. Borrowing costs may continue to rise despite risks to broader economic growth.