The European Central Bank (ECB) decided on Thursday to raise all three key interest rates by 25 basis points.
The deposit facility rate through which the ECB steers the monetary policy stance will be lifted to 2.25 percent and the rates on the main refinancing operations and marginal lending facility will stand at 2.4 percent and 2.65 percent, respectively, the ECB said in a press release.
"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," the ECB said.
The ECB's rate hike came at a time when inflation in the euro area was on the rise, driven mainly by energy price hikes due to the Iran conflict.
In its latest projections released on Thursday, the ECB raised its inflation forecasts for both 2026 and 2027 compared with its March outlook. Headline inflation is now expected to average 3.0 percent in 2026 and 2.3 percent in 2027, up from the previous projections of 2.6 percent and 2.0 percent, respectively.
"The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth," the ECB said.
Inflation in the euro area rose to 3.2 percent in May from 3 percent in April as energy prices soared by 10.9 percent. The ECB believes the energy price hikes will push inflation even higher over the summer, noted ECB President Christine Lagarde.
The ECB also lowered its economic growth projections for 2026 and 2027 compared with the March forecast, as it said the euro area economy is expected to grow at 0.8 percent in 2026 and 1.2 percent in 2027.
The interest rate hike on Thursday is the first time that the ECB has lifted its key interest rates since September 2023. The central bank has put interest rates on hold since June last year.
ECB hikes interest rates amid inflationary pressures
