The European Central Bank will lift its deposit rate by a quarter point to 2.25%, marking the first hike since 2023. The move follows a steady rise in inflation, now at 3.2% in May, driven by sustained oil price pressure from the Iran war. Investors brace for a tighter euro‑zone policy cycle.

Economic surveys flag a slowdown in business activity, raising doubts about how steeply rates can climb before a recession triggers. Bloomberg polls suggest the ECB may raise rates again later this year, nudging the policy rate toward a neutral range. Lagarde will address the trade‑off in a Frankfurt press conference.

New forecasts predict higher inflation in 2026 and 2027, while trimming growth estimates, reflecting the expectation that oil prices will stay elevated. The ECB will likely present alternative scenarios if energy costs rise further, a move that could tighten financial conditions and dampen euro‑zone growth momentum.

Lagarde’s press conference will feature a new deputy after Croatia’s Boris Vujcic became ECB vice president, replacing Luis de Guindos. Meanwhile, new Governing Council members, including Emmanuel Moulin and Ulo Kaasik, signal a shift in policy oversight. Market participants must watch how these changes shape the ECB’s tightening trajectory.