The ECB lifted its deposit rate to 2.25% from 2% on Thursday, its first hike since 2023. Policymakers said rising oil prices from the Iran‑Israel conflict forced action, rejecting a wait‑and‑see stance. Markets priced in a further quarter‑point move in September, and the ECB stressed it remains ready to act amid “upside inflation risks” and “downside growth risks.”

Euro‑area bond yields slipped, with the benchmark 10‑year yield trading at 3.05%, three basis points lower after the decision. The euro held steady at $1.1538. ECB President Christine Lagarde warned that the Middle‑East war could prolong higher energy prices, pushing inflation above target through mid‑2027 and dampening services activity, which surveys already show slowing. Analysts see limited room for further easing.

The hike marks the first major central‑bank response to the oil price surge linked to the conflict, underscoring the ECB’s tighter stance compared with peers. Canada left rates unchanged, while the Fed and BoE are expected to hold steady next week, and Japan continues gradual tightening. Investors now price in a more hawkish European monetary policy trajectory. The move pressures corporate borrowers across the bloc.