FRANKFURT, June 11, 2026 – The European Central Bank on Thursday raised its benchmark interest rate for the first time since 2023 as war in the Middle East fueled inflation, despite concerns the move could hit the struggling eurozone economy.

The ECB raised its deposit rate by a quarter point to 2.25 percent, becoming the first major central bank to tighten monetary policy in response to energy shocks caused by the conflict.

Eurozone inflation has been accelerating since the start of the US-Israeli war against Iran, rising to 3.2 percent in May, above the ECB’s two percent target.

In announcing the rate hike, the ECB said “the war in the Middle East is generating inflationary pressures”.

“The outlook remains uncertain, with inflationary risks and downside risks to economic growth,” it said in a statement.

“The full impact of the war on inflation and growth over the medium term will depend on the magnitude and duration of the energy price shock, as well as the scale of its indirect” effects, it added.

The ECB has raised its inflation forecast for this year to three percent from an earlier estimate of 2.6 percent in March.

And the central bank cut its eurozone growth forecast for this year to 0.8 percent from 0.9 percent.

The Strait of Hormuz, a critical oil and gas transit route, remains almost completely closed, while a ceasefire in the three-month-old war is under pressure after the United States launched new attacks and Tehran responded with strikes in the region.

– first mover –

While some smaller central banks have lifted rates in response to the energy shock, other major institutions – including the US Federal Reserve and the Bank of England – have held back as they gauged the outcome.

Both the Fed and the BoE are scheduled to hold meetings next week.

For the Frankfurt-based ECB, the rate hike is the first since September 2023, when policymakers were battling runaway inflation caused by Russia’s invasion of Ukraine.

Following that, the central bank made a series of cuts as inflation eased, but kept rates steady since June last year.

Higher borrowing costs reduce demand, which helps reduce inflation.

But a growing number of economists speak out against lifting rates.

They warn that the move may do little to tackle inflation that stems primarily from a lack of energy supply rather than strong consumer demand.

– growth anxiety –

Higher borrowing costs will also weigh on the troubled 21-nation single currency area, after the eurozone economy contracted in the first quarter due to a recession in Ireland.

It comes at a time when high energy costs are already burdening homes and businesses.

Analysts say ECB officials may be nervous about waiting too long to tighten monetary policy, especially after facing criticism for moving too slowly to curb inflationary increases in 2022.

But most analysts say the economic backdrop is different now. Inflation had already risen before the outbreak of the Ukraine war, and the global economy was struggling with post-pandemic supply chain problems.

Investors will be watching ECB President Christine Lagarde closely at a press conference for any clues about the way forward, although she is expected to remain tight-lipped.

Most of Thursday’s move is not expected to start an aggressive rate-hiking cycle.