The European Central Bank hiked rates to counter inflation pressures from the Middle East war and revised up its inflation forecasts for 2026-2027.
The European Central Bank increased its three key interest rates by 25 basis points, citing persistent inflation risks tied to the Middle East conflict. The move aims to anchor inflation at the 2% medium-term target amid elevated price pressures.
New Eurosystem staff projections show headline inflation averaging 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028, with core inflation at 2.5% in 2026-2027. Growth forecasts were downgraded to 0.8% in 2026 and 1.2% in 2027 due to the war’s impact on commodity markets and real incomes.
The decision reflects a robust response across multiple scenarios assessing the shock’s evolution on the euro area’s economic outlook.