The European Central Bank appears poised to move to a new increase in interest rates by 25 basis points at its next meeting on Thursday (11/6) , at a time when the energy crisis and war in the Middle East continue to weigh on the eurozone economy.
Market estimates suggest that the key deposit-taking rate is expected to come in at 2.25%. It will be the first interest rate hike in more than two and a half years, the last one having taken place in September 2023, when the rate reached 4%.
The ECB’s change of stance is mainly attributed to the prolonged turmoil in the energy market. The Strait of Hormuz remains effectively closed, while oil and gas prices continue to hover at high levels.
Isabelle Schnabel, a member of the ECB’s Executive Board, sent a clear message about the new direction of monetary policy. She said interest rates should be raised as the war has lasted longer than originally forecast and energy increases are now being passed on to more sectors of the economy.
He also added that raising interest rates would be necessary even if there is an agreement between the US and Iran to end the conflict, as critical energy infrastructure in the Middle East has already been affected.
The ECB is not expected to give a clear signal on its next moves. Its firm position remains that any decision will be made on the basis of the economic data available at each meeting.
However, as long as the uncertainty surrounding the war remains, the chances of another rate hike in 2026 increase. In a Reuters survey, 60% of economists estimated there could be another hike, most likely in September.
At the same time, the eurozone economy is showing signs of fatigue. GDP fell by 0.2% in the first quarter of 2026 compared with the previous quarter, with the effects of the war already being felt in several economies.
The picture for the second quarter also looks weak. S&P Global chief economist Chris Williamson noted that business data for May point to a possible new 0.2% decline in GDP if there is no improvement in June.
“The argument for further interest rate rises will be harder to support if the economy continues to weaken, and indeed the decline in demand will limit the ability to raise prices and wages,” he added.
Eurozone inflation continued its upward trend in May, rising to 3.2% from 3% in April. Much of the increase was attributed to energy, as energy prices rose 10.9% year-on-year.
At the same time, upward pressure is now being registered in other sectors of the economy. In services, the price index rose to 2.5%, while non-energy industrial products rose 0.9%.
Williamson warned that price pressures have reached their highest level in three years and did not rule out the possibility of inflation moving close to 4% in the coming months.
