ECB raises key rate 25 basis points to 2.25%, lifts inflation forecasts amid Iran war

According to CNBC, the European Central Bank raised its key interest rate by 25 basis points to 2.25% on Thursday, citing inflation pressures linked to the U.S.-Iran war. The ECB also lifted its outlook for euro zone headline inflation to 3% in 2026, 2.3% in 2027 and 2% in 2028, while cutting growth forecasts to 0.8% in 2026, 1.2% in 2027 and 1.5% in 2028. ECB President Christine Lagarde said policymakers are not pre-committing to a particular rate path and described upside risks to inflation and downside risks to growth. Euro zone inflation rose to 3.2% in May and the economy grew 0.1% in the first quarter; after the decision, the 10-year German bund yield was 2 basis points lower, while the euro was flat against the dollar and the British pound.