European Central Bank (ECB) Restarts Rate Hikes! The First Rate Increase in Nearly Three Years by 1 Basis Point, as the Middle East Conflict Ignites an Inflation Rebound

According to the latest monetary policy decision released by the European Central Bank (ECB) today (11th), the official announcement was a 25 basis point (1 pip) interest rate hike, marking the first rate increase since 2023. This move is mainly in response to recent energy price surges and inflation rebound pressures caused by the Middle East conflict (Iran war).
(Background: U.S. CPI soared to 4.2% in May! Energy prices skyrocketed, becoming the main driver of inflation, with December rate hike expectations reaching 42.5%)
(Additional context: U.S. non-farm payrolls surged by 172k in May, far exceeding expectations! Unemployment rate held steady at 4.3%, Fed rate hike expectations surged)

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• Middle East conflict intensifies, inflation monster reemerges
• Double blow: upward revision of inflation expectations, downward adjustment of economic growth
• Future outlook: data-dependent mode, market expects another rate hike this year

Under the pressure of inflationary beast, the European Central Bank (ECB) officially ended its previous easing path. According to the latest interest rate decision announced by the ECB at local time 11th, the three key interest rates were all raised by 25 basis points (1 pip), marking the first rate hike since 2023.

This adjustment will take effect from June 17, 2026, when the deposit facility rate will rise to 2.25%, the main refinancing operations rate to 2.40%, and the marginal lending facility rate to 2.65%.

Middle East conflict intensifies, inflation monster reemerges

The core reason prompting the ECB to adopt tightening measures is the recent escalation of geopolitical crises. With the outbreak of the Iran war and the disruption of energy supplies through the Hormuz Strait, international energy prices have surged dramatically in retaliation. This pressure has directly reflected in macroeconomic data, with the eurozone’s consumer price index (HICP) rising to 3.2% in May from 3% in April, significantly deviating from the ECB’s 2% target.

Meanwhile, the core inflation rate excluding energy and food also increased from 2.2% to 2.5%, strongly indicating that the “second-round effects” of inflation (such as wage and service price increases) have begun to spread in the real economy.

Double blow: upward revision of inflation expectations, downward adjustment of economic growth

In its latest economic forecasts, the ECB expressed concerns about stagflation risks. The ECB revised upward its inflation forecasts for 2026 and 2027, respectively reaching 3.0% and 2.3% under the baseline scenario. On the other hand, due to the severe impact of the war on commodity markets, real income, and business confidence, the official forecast for economic growth in 2026 was cut to only 0.8%.

After multiple rate cuts in 2025, the ECB initially maintained steady rates in April this year, attempting to stimulate the economy with lower interest rates. However, the sudden geopolitical risks have completely changed the policy trajectory, with markets already nearly 100% expecting this defensive rate hike before the meeting.

Future outlook: data-dependent mode, market expects another rate hike this year

Regarding future policy directions, ECB President Christine Lagarde emphasized in her statement that the ECB will strictly adhere to the principles of “data dependence” and “meeting-by-meeting decisions,” refusing to make any pre-commitments on the future interest rate path. However, market analysts generally expect that if energy shocks persist, the ECB may be forced to hike rates another 1 to 2 times in 2026 (totaling approximately 50 to 75 basis points).

The ECB also reiterated that it is prepared to adjust all tools at any time, including the Transmission Protection Instrument (TPI), to address upside risks to inflation and downside risks to economic growth. Analysts point out that rate hikes usually support the euro (EUR), but if Lagarde emphasizes economic slowdown uncertainties during the subsequent press conference and signals dovishness, it could limit the euro’s gains; meanwhile, rising borrowing costs will undoubtedly put more financial pressure on eurozone households and businesses already suffering from high energy bills.