ECB raises interest rates as inflationary pressures continue to rise

The European Central Bank raised interest rates for the second time this year, seeking to control an energy-driven rise in inflation triggered by a fresh escalation of the war in the Middle East and growing threats that fuel prices could move higher.

A month of relative calm has been shattered since the end of August, as the US and Iran hit military, shipping and energy assets, sending oil back above $100 a barrel and reviving fears about a wave of price hikes in the fuel-importing euro zone.

The ECB responded by raising its policy rate to 2.50% from 2.25%. It acknowledged that even then, inflation was expected to stay above its 2% goal through to 2028, in part because activity in the wider economy was proving to be resilient.

Today’s decision and comments from the ECB prompted traders to raise their bets on further hikes, pricing in 60 basis points more increases by April 2027.

ECB President Christine Lagarde, as usual, stressed that the bank did not pre-commit to any future moves, while economists said that September’s hike was likely to be the ECB’s last for now. However, many warned that further tightening may be needed if the inflation outlook deteriorates.