The European Central Bank raised the deposit rate 25bp to 2.25%, its first
increase in nearly three years, citing rising inflationary pressure tied to the
Iran conflict. The move matched market expectations and markets broadly expect
another 25bp by September. The ECB stressed it will not precommit to future
action, saying the outlook remains uncertain, with upside risks to inflation and
downside risks to growth, and that the war’s full medium‑term impact depends on
the intensity and duration of the energy price shock and second‑round effects.
Officials flagged that inflation is spreading beyond energy and may be hard to
contain even if hostilities end quickly. New quarterly projections show
inflation higher than previous forecast and not returning to 2% until 2028,
and the outlook warns higher inflation and borrowing costs are eroding
purchasing power and slowing growth.
