Overview
- The European Central Bank raised its deposit rate to 2.25% and its main lending rate to 2.40% in a 0.25 percentage-point move announced Thursday.
- ECB President Christine Lagarde said the war in the Middle East is creating inflationary pressure and cited higher energy costs as the main reason for the change.
- Eurostat data show consumer prices in the euro area rose 3.2% year-on-year in May and inflation has grown for four consecutive months while growth weakened with Q1 GDP down 0.2% quarter-on-quarter.
- The ECB said the outlook is uncertain with upside risks to inflation and downside risks to growth and that it will judge policy on a meeting-by-meeting basis.
- The rate hike is the first by a major central bank since the recent Middle East escalation and could prompt other central banks and markets to reassess policy and borrowing costs for households and firms.