The European Central Bank (ECB) raised interest rates for the first time in nearly three years on Thursday, from 2 to 2.25 percent, making it the first major central bank to raise rates amidst climbing inflation. Higher energy costs in the eurozone helped to push inflation over 3 percent, forcing a response from the central bank.
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Economists and investors expect the U.S. Federal Reserve and Bank of England to join the ECB by the end of the year in raising interest rates as inflation continues an upwards climb. Iran’s closing of the Strait of Hormuz has driven up energy prices significantly and weighed significantly in inflationary pressures across the globe.
The eurozone’s economy shrank by 0.2 percent in the first quarter of the year, though this was likely biased by a much larger decline in the often volatile Irish economy. The central bank has revised down its growth forecasts for 2026 and 2027, down to 0.8 and 1.2 percent respectively.
Economists believe that the lower starting rate for the ECB allows it to raise rates far sooner than other central banks, like the Federal Reserve.
