ECB raises interest rates for the first time in three years as Iran war fuels inflation
Baku, June 11, AZERTAC
The European Central Bank has lifted its deposit facility rate by 0.25% to 2.25%, marking a decisive pivot back to tightening as the Iran war pushes eurozone inflation to its highest level in nearly three years, according to Euronews.
The European Central Bank has raised interest rates for the first time in nearly three years, lifting its deposit facility rate from 2% to 2.25% following its governing council meeting on Thursday.
The ECB sets monetary policy for the eurozone through three key interest rates, with the deposit facility rate serving as its main policy benchmark.
The ECB’s deposit facility rate was last raised in September 2023, when it reached its peak of 4.0% after a tightening cycle meant to stabilise the post-pandemic inflation crisis.
The ECB also raised its main refinancing operations rate to 2.4% and its marginal lending facility rate to 2.65%.
The hike in the key interest rates marks a clear reversal of the easing cycle that had defined the ECB's approach throughout much of 2025 and, with eurozone inflation hitting 3.2% in May, its highest reading since September 2023, driven by a 10.9% surge in energy prices.
Essentially, the governing council concluded that inaction was no longer tenable.
Ahead of Thursday's meeting, financial markets had priced in a hike with near certainty as ECB governing council members signalled a rate increase in June from both the hawkish and dovish ends of the spectrum.
The hike arrives at a difficult moment for the eurozone economy.
The bloc’s economy shrank by 0.2% in the first quarter of 2026 compared with the previous three months, prompting economists to warn of a period of stagflation—a combination of weak growth, rising inflation, and deteriorating confidence.
The ECB's own Survey of Professional Forecasters placed full-year 2026 GDP growth at just 0.9%, a downward revision attributed directly to the negative impact of higher energy prices stemming from the Iran war.
Inflation rose to 3.2%, the highest level since 2023, and core inflation, which strips out volatile food and energy components, also climbed from 2.2% in April to 2.5% in May, undermining any argument that the price pressures remain confined to energy alone.
For households and businesses across the 21-country bloc, the decision translates into higher borrowing costs on mortgages and corporate loans, at a time when purchasing power is already being squeezed by elevated fuel and gas prices.
Markets are also pricing in roughly a 50% probability of a further hike in September, suggesting Thursday's move is seen as the opening of a new tightening phase rather than a targeted, one-off intervention.
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