The European Central Bank has raised interest rates for the first time since September 2023, a move that underscores how the war in the Middle East is driving up energy costs and reigniting inflation across the eurozone.
The quarter-point increase lifts the ECB’s deposit facility rate to 2.25% from 2%, the main refinancing operations rate to 2.4% from 2.15%, and the marginal lending facility rate to 2.65% from 2.4%. Policymakers voted for the hike after eurozone inflation rose to 3.2% last month, as the Middle East crisis pushed up energy costs.
“ECB raises rates for first time since 2023 as Middle East crisis pushes eurozone inflation to 3.2%.”
“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.
European stock markets were mostly higher on the news, while oil prices slipped back. In London, the FTSE 100 found support from its collection of energy companies and more traditionally defensive names. Miners and other China-linked stocks were lifted by data suggesting the country is investing heavily in AI and consuming raw materials at a healthy rate. Conversely, selling in AI-related stocks, of which London has very few, put shares on Wall Street under pressure yesterday and extended to Asia today.
The ECB becomes the first G7 central bank to raise rates in response to the Middle East energy crisis, signalling that the conflict’s economic shockwaves are now spreading beyond the region – and that policymakers see price stability as their priority even amid geopolitical turmoil.