ECB Raises Interest Rate to 2.50% as Energy Prices Fuel Inflation

The European Central Bank (ECB) raised interest rates Thursday to combat inflation fueled by surging energy prices associated with the war involving Iran, as per a Reuters report.

European Central Bank President Christine Lagarde speaks after the ECB raised interest rates to combat persistent energy-driven inflation.

The ECB raised its deposit facility rate by a quarter percentage point to 2.50% at a policy meeting in Berlin, its second rate increase of the year. The bank had kept rates unchanged at its July 23 meeting after raising them at its June 11 meeting.

The decision came as eurozone inflation climbed to 3.3% in August, well above the ECB's 2% target.

Oil prices have surged above $100 a barrel amid continuing disruptions and threats to shipping through the Strait of Hormuz.

ECB President Christine Lagarde said the outlook remained highly uncertain, with risks tilted toward higher inflation and weaker economic growth.

She also warned that elevated energy prices could keep inflation above the ECB's target for an extended period.

At the same time, the eurozone economy has proved more resilient than expected. The ECB raised its 2026 growth forecast to 0.9%, from 0.8% previously, while projecting average inflation of 3.0% this year and 2.5% in 2027.

The rate increase comes as the US Federal Reserve also faces renewed pressure to combat inflation. Fed Chair Kevin Warsh has warned that inflation remains too high and indicated that policymakers may need to raise interest rates if price pressures do not ease.

The Fed's next policy meeting is scheduled for Sept. 15-16.