The European Central Bank hiked its interest rates by 25 basis points to 2.25%, in the first tightening move since September 2023, when it ended its previous round of hikes.
The decision, which confirmed analysts’ estimates, marks a shift in monetary policy for the ECB, which becomes the first major central bank to respond to inflationary pressures caused by the Middle East.
The resurgence of inflation in the Eurozone, which reached 3.2% in May, is mainly attributed to soaring energy prices following the Middle East flare-up and the closure of theSea Strait of Hormuz, one of the most critical sea lanes for global energy supply.
At first, ECB officials hoped the new inflation shock would be temporary. However, the prolonged duration of the conflict, little progress in diplomatic efforts and signs that the price rises are now being passed on to sectors beyond energy have intensified the pressure for action.
Interest now turns to the ECB president,Christine Lagarde’s statements, and investors will be looking for clues as to whether today’s hike is an isolated intervention or the start of a new tightening cycle, as analysts see at least one more rate hike later this year.
