ECB raises rate for first time since 2023
The European regulator's decision was influenced by a jump in inflation in the eurozone due to the war in the Middle East
The EU regulator became the first of the world's major central banks to raise rates in response to the conflict in the Middle East. Photo: de-nue-pic/Shutterstock
The European Central Bank (ECB) - for the first time since 2023 - raised interest rates by 25 basis points - to 2.25%, which was in line with the forecasts of most analysts. Thus, the EU regulator became the first of the world's largest central banks to raise rates, responding to the conflict in the Middle East, Bloomberg writes.
The ECB also now expects inflation to reach 3% by the end of 2026, the previous forecast was 2.6%. Next year, price growth will slow to 2.3%, the regulator expects. In addition, he revised the forecasts for economic growth - this year the eurozone GDP will increase not by 0.9%, but by 0.8%, the ECB believes. And in 2027, it forecasts growth of 1.2% instead of 1.3%.
What's in the markets
The rate hike was fully factored into the price, with traders already expecting higher inflation forecasts for 2026 and 2027, Bloomberg writes. According to LSEG, ahead of the ECB meeting, the markets also put in quotations almost 100 percent probability of raising interest rates in the eurozone by at least 25 basis points, notes CNBC. Thus, on the background of the decision of the European regulator, the pan-European index STOXX Europe 600 rose by 0.3%. German index DAX fell by 0.4%, British index FTSE 100 rose by 0.5%, French index CAC 40 rose by 0.4%.
Context
According to preliminary data published in early June by Eurostat, annual inflation in the eurozone accelerated to 3.2% in May after April's growth rate of 3%. The main driver of growth was the rise in energy prices amid the crisis in the Middle East. This result was fully in line with the expectations of economists surveyed by Reuters. Nevertheless, the indicator is still noticeably above the European Central Bank's target of 2%.
After the current rate hike, market participants believe that the ECB will need to increase it at least once more this year - thus rates in Europe will be brought to the upper limit of the range, which is considered neutral for the economy, writes Bloomberg. Prior to that - since June 2025 - the ECB interest rates have remained unchanged.
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This article was AI-translated and verified by a human editor
