ECB Raises Interest Rates for First Time in Nearly Three Years

The European Central Bank (ECB) has raised interest rates for the first time in almost three years in a bid to prevent a further acceleration in inflation, which has been fueled by rising energy prices triggered by the war in the Middle East. It is the first rate increase among the world's major central banks in response to the current energy shock.

The Governing Council unanimously decided to raise the deposit rate from 2% to 2.25%. Inflation in the eurozone has already exceeded 3%, well above the ECB's 2% target. At the same time, however, the currency bloc's economy is growing only very slowly, prompting debate about whether further monetary tightening is appropriate.

The ECB has also revised its inflation forecasts upward and lowered its economic growth outlook. According to the new projections, inflation is expected to reach 3% in 2026, before falling to 2.3% in 2027 and 2% in 2028. The bank slightly downgraded its growth forecasts for 2026 and 2027.

ECB President Christine Lagarde rejected suggestions that the move was merely precautionary, stressing that the central bank would closely monitor further developments in the energy shock and continue to base its decisions on incoming economic data.

Markets are currently pricing in the possibility of a further rate increase as early as September.

(reuters, max)