ECB raises interest rates to combat inflation

The European Central Bank (ECB) raised interest rates for the second time this year on Thursday, in a widely expected move aimed at curbing rising inflation, which has been driven entirely by higher energy costs stemming from the war in Iran.

Sharp increases in oil and natural gas prices pushed inflation above 3% last month in the 21-member eurozone, well above the ECB’s 2% target.

“The outlook remains highly uncertain, with risks of higher inflation and weaker economic growth,” the ECB said in a statement following its meeting in Berlin.

The ECB also raised its forecast for economic growth in 2026 to 0.9%, compared with the 0.8% projected in its previous forecast in June.

The central bank now expects inflation to average 3% this year and 2.5% in 2027.

Interest rate raised to 2.5%, upper end of neutral range

Thursday’s decision raises the ECB’s key interest rate to 2.5%, the upper end of the “neutral” range, a level policymakers consider neither restrictive nor supportive of economic growth.