Overview
- The European Central Bank raised its deposit rate by 25 basis points to 2.25%, a move taken on June 11 that was the first ECB increase in almost three years.
- The decision follows a sharp jump in oil and gas prices after military action around the Strait of Hormuz pushed euro-area inflation to about 3.2% in May.
- ECB officials and Bundesbank president Joachim Nagel warned that higher energy costs can keep inflation elevated even if the conflict ends and signalled the bank will act meeting by meeting.
- Other major central banks, including the Federal Reserve, Bank of England and Bank of Japan, have paused for now, creating a split in policy that is changing currency, bond and borrowing costs.
- Markets and households could feel higher mortgage and borrowing costs if the ECB tightens further and investors should watch energy prices, wage growth and the ECB’s next data updates for clues on the bank’s path.