War in the Middle East: the ECB raises its rates, growth in the euro zone does not "seriously threatened"says Lagarde

• The European Central Bank (ECB) raised its key rates by 0.25 percentage points on Thursday.
• A decision taken “unanimously”, to counter inflation linked to the conflict in the Middle East.
• “It’s not as if we are in an environment where growth is absent or seriously threatened,” assured Christine Lagarde.

The European Central Bank (ECB) raised its rates on Thursday to respond to renewed inflation linked to the conflict in the Middle East, at the risk of penalizing an economy in the euro zone already out of breath. The deposit rate, which is the benchmark, was increased by a quarter of a point, to 2.25%, after remaining unchanged since July 2025, as most economists expected. This is also the first increase since 2023.

The president of the European Central Bank on Thursday defended the decision of the Governing Council to raise interest rates in the face of the inflation shock caused by the war in Iran, arguing that growth in the euro zone was not “seriously threatened”. “It’s not like we’re in an environment where growth is absent or seriously threatened.”assured Christine Lagarde during a press conference. The ECB slightly lowered its growth forecast by a tenth of a percentage point for 2026, to 0.8%.

A decision taken “unanimously” and “without reservation”

The President of the European Central Bank also assured that the decision of the Governing Council to raise its interest rates had been taken. “à l’unanimité” et “sans réserve”. The guardians of the euro were forced to react to inflation which started to rise again to reach 3.2% in May in the euro zone, significantly above the 2% target set by the ECB. The cause is the war waged by the United States and Israel against Iran, accompanied by the closure of the Strait of Hormuz, a key axis for the transport of oil, causing a surge in energy prices.

The ECB also supported its decision on the basis of new economic projections for the euro zone, adjusted compared to those of March to take into account a conflict in the Middle East which drags on. Inflation forecasts were raised for 2026 and 2027, to 3.0% and 2.3% respectively, before seeing the aggregate fall back to 2.0% in 2028.

Don’t repeat the same mistake as in 2022

The institution had to react in order to“send a signal to the financial markets, but also to businesses and households, that the institution is closely monitoring the dynamics of inflation”, explained Dirk Schumacher, chief economist at the public bank KfW, before the meeting.

Anxious not to repeat its error of 2022, namely a reaction considered late to the surge in inflation linked to the Russian war in Ukraine, the ECB sought to avoid any a posteriori criticism of its timing, after having completed its last cycle increases in September 2023. By raising its rates, the ECB is making credit more expensive, which is slowing down consumption and investment. The objective is to slow down demand to contain price increases.

Bad timing?

However, this eagerness to act contrasts with other major Western central banks, also faced with a marked increase in inflation and which seem more inclined to give themselves time before tightening the monetary screw. Many economists judged that the time was not right to once again tighten monetary policy in the euro zone, whose GDP fell by 0.2% in the first quarter, penalized by a major correction in Ireland, while the effects of the war will weigh on the current quarter.

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This decision “risks amplifying the contraction in activity” tout en s’avérant “ineffective in reducing inflation” which is based on an increase in the price of imported energy, estimates Eric Dor, director of economic studies at the IESEG School of Management. “Even if the blockade of the Strait of Hormuz were to be lifted in the near future, a further increase in policy rates during the year would still be appropriate. But then it should stop there.”according to Ulrich Kater, economist at DekaBank.