ECB raises key rate to 2.5%, keeps hikes on table

The European Central Bank raised its benchmark interest rate by a quarter percentage point to 2.5% on Thursday and kept the possibility of further increases open as higher energy prices added pressure to eurozone inflation.

The move was the ECB's second rate rise this year and took the benchmark rate to its highest level since March last year for the 21-country eurozone. ECB President Christine Lagarde said the governing council's decision was unanimous and called it a "no-brainer".

Lagarde said Middle East conflict was continuing to generate inflation pressure and that inflation was set to remain well above the ECB's target for an extended period. She declined to give clear guidance on the next policy steps, saying the outlook was too unclear.

The ECB kept this year's inflation forecast at 3% and raised its projections for 2027 and 2028. It also lifted growth forecasts to 0.9% this year and 1.4% next year. Lagarde said the near-term economic outlook had improved and that the eurozone economy had shown resilience.

Brent crude has climbed back above $100 a barrel this week, while natural gas prices in Europe have reached their highest level in more than three years. Higher ECB rates can make mortgages, consumer credit and other loans more expensive.

Roman Ziruk, an FX strategist at Ebury, said the ECB's communications could be read as having a "hawkish tilt" because Lagarde signalled that inflation was proving persistent and highlighted the economy's resilience.