ECB raises deposit rate to 2.25%, first hike since September 2023, to combat 3.2% inflation fuelled by Iran war
The European Central Bank raised its benchmark deposit rate by a quarter-point to 2.25% on Thursday, its first increase in nearly three years, as the war in Iran clogs the Strait of Hormuz and sends energy prices soaring across the eurozone.
The decision
On 11 June, the ECB announced a quarter-point increase in its deposit rate, from 2% to 2.25%. It was the first rate move since June 2025 and the first hike since September 2023. The 29-member governing council acted after headline inflation in the 21-nation eurozone hit 3.2% in May, well above the bank’s 2% target.
The war in the Middle East creates inflationary pressure and the decision to raise rates is robust to a range of scenarios of how the shock might develop.
What drove prices up
Inflation was just 1.9% in March and April, close to target. But the conflict that began when Israel and the United States attacked Iran in late February has blocked the Strait of Hormuz for over 100 days, cutting off roughly a fifth of global oil and gas supply. Energy and fuel costs surged, pushing up consumer prices across the bloc. In the Netherlands, inflation reached 3.5% in May.
- Israel and US attack Iran; Iran blocks Strait of Hormuz
- Eurozone inflation hits 3.2% in May, up from 1.9% in early 2026
- ECB raises deposit rate to 2.25% at Frankfurt meeting
Projections and risks
The ECB’s baseline sees full-year inflation at 3% in 2026, easing to 2.3% in 2027 and back to 2% in 2028. It meanwhile cut its growth forecast for the 21 countries to 0.8%, blaming the war for higher commodity prices and weaker confidence. President Christine Lagarde cautioned that the outlook hinges on the intensity and duration of the energy shock.
Market and bank reaction
Financial markets had anticipated the move for at least a month, and several Belgian banks — Argenta, BNP Paribas Fortis, VDK — had already nudged up savings rates. Most analysts expect two more quarter-point hikes this year, though the impact on mortgage rates is likely to be limited because the tightening path is already priced in. Bert Colijn, eurozone economist at ING, said the historically cautious approach was understandable given the soft economy.
Back then we had a stronger economy. Everyone had been stuck at home due to corona and saved money because we couldn't go on holiday. Now the economy isn't bad, but not great either, so the ECB is more careful.
What it means for households
Savers stand to gain gradually, while borrowers face higher costs. By making credit more expensive, the ECB aims to cool demand and thereby contain prices. But Colijn noted that monetary tightening cannot reopen a sea lane. The bigger goal, he argued, is to prevent a repeat of the policy error after the Ukraine invasion, when the central bank moved too late and lost control of inflation expectations.
An interest-rate hike will not open the Strait of Hormuz. Still, it is important the ECB acts. Four years ago they were too late with rate increases, and they don't want to make that mistake again.
