The European Central Bank raised interest rates by 0.25 basis points to 2.25% in its June policy meeting, delivering the first rate hike since September 2023, in attempt to act proactively and to keep a lid on inflation expectations, as well as to avoid the mistake from post-pandemic period when the central bank was late to react on time and was forced to chase surging inflation.

The decision was widely expected, as bloc’s inflation rose well above ECB’s 2% target and on track for further rise on full impact from the war in the Middle East.

In the press release, the central bank stated that the war in the Middle East is generating inflation pressures, and the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area.

Policymakers pointed to upside risks for inflation and downside risks for economic growth and revised up inflation projections, expecting inflation to 3.0% this year, 2.3% in 2027 and 2.0% in 2028, but did not signal any future move, sticking to its standard mantra that decisions will be made at each meeting depending on incoming economic data.

However, many economists did not fully support ECB’s decision and warned that continuous slowdown of bloc’s economic growth, driven by war in Ukraine as local and war in the Middle East as global threat, may result in economy contraction in Q2, with the latest policy tightening likely to further fuel the problem.