The European Central Bank (ECB) has taken a further step in its monetary tightening policy by raising its key interest rate to 2.5%. This decision, adopted unanimously by the Governing Council, marks the second hike of the year and brings borrowing costs in the eurozone to their highest level since April 2025. The move comes as part of a persistent battle against inflation that is struggling to return to the 2% target, with the institution now projecting a 2.5% price increase for the coming year, up from its initial forecast of 2.3%.
The primary driver of this instability remains the energy market. The recent surge in oil prices, now reaching $105 per barrel due to heightened geopolitical tensions in the Middle East, is exerting constant pressure on consumer prices. Addressing the situation, Christine Lagarde emphasized that inflation may persist longer than anticipated, justifying the need for sustained monetary tightening to prevent second-round effects, particularly a wage-price spiral in the services sector.
Despite this inflationary backdrop, the ECB has displayed measured optimism regarding the eurozone's resilience. By revising its growth projections upward, now forecasting 0.9% for the current year and 1.4% for 2027, the institution has afforded itself more comfortable room to maneuver. This stronger economic performance allows the central bank to tighten rates without the immediate fear of stifling growth, making the policy trade-off less perilous for the governors.
Financial markets have largely priced in this trajectory, already anticipating two further rate hikes by the first quarter of 2027. However, the real effectiveness of these measures remains subject to a major paradox: while high rates serve to anchor inflation expectations, they have no direct impact on the cost of a barrel of oil, the volatility of which depends primarily on the security of global supplies. Monitoring core inflation will therefore be critical in the coming months to assess whether this energy shock remains contained within commodities or becomes deeply entrenched in the real economy.