ECB raises key interest rate to 2.25 percent first hike since 2023 citing Middle East war inflation
Anyone with a euro-zone mortgage or loan just got more expensive credit. The ECB raised its key rate a quarter point to 2.25% on Thursday, its first hike since September 2023, citing inflation pressure from the war in the Middle East. It now sees euro-zone inflation averaging 3%
Borrowers across the euro zone are about to feel the squeeze. The European Central Bank raised its key interest rate by a quarter point to 2.25% on Thursday, the first increase since September 2023 and the end of seven consecutive meetings on hold. The Governing Council said the war in the Middle East is generating inflation pressure, and it lifted its inflation outlook accordingly: the ECB now expects euro-zone inflation to average 3% in 2026 before easing to 2.3% in 2027 and 2% in 2028. At the same time, the bank trimmed its growth forecasts, projecting euro-zone expansion of 0.8% this year, 1.2% in 2027 and 1.5% in 2028. The combination matters because higher rates raise the cost of mortgages, business loans and government borrowing at a moment when the bank also sees weaker growth. For households and companies that had been waiting for cheaper credit, the direction has reversed. According to reporting from CNBC, Bloomberg and Euronews, the decision reflects how an external energy and price shock is pulling European monetary policy in a different direction than it was heading just months ago.