The European Central Bank raised its three interest rates by 25 basis points, the first increase since 2023. The decision was not a response to an overheating economy, but to a supply shock: the war in the Middle East and disruption to oil shipments pushed energy prices higher and lifted the inflation path, prompting the Governing Council to act rather than wait.
More importantly, Lagarde rejected describing the move as a one-off “insurance hike”, presenting it as a shift in the baseline. At the same time, however, she cut growth forecasts — making the path ahead a battle between energy-driven inflation and slowing growth.
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