ECB Raises Deposit Rate to 2.25% in First Hike Since 2023, Citing Iran War Inflation Pressure

According to Bloomberg, the European Central Bank raised its deposit rate by 25 basis points to 2.25% from 2%, marking the first rate increase in nearly three years as policymakers concluded they can no longer hold off amid intensifying inflation pressures from the Iran war. Economists and investors had fully anticipated the move and foresee another quarter-point hike in September, though the ECB reiterated it will not pre-commit to future action. "The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth," the ECB said, adding that the war's full implications for medium-term inflation will depend on the intensity and duration of the energy price shock and its second-round effects. The hike is the first policy response by a major central bank to the oil price surge triggered by the four-month Middle East conflict. Fresh quarterly projections show consumer prices rising faster than previously forecast in 2026, before retreating to the 2% target in 2028, though the new outlook also flags dwindling economic growth as inflation and higher borrowing costs erode buying power. European 10-year yields fell three basis points to 3.05% after the announcement; the euro was steady at $1.1538. Other G7 central banks are moving more slowly — the Bank of Canada held rates Wednesday, while the Fed and Bank of England are expected to stand pat next week.