The European Central Bank raised interest rates to 2.5 percent on Thursday, the highest level in over a year, as officials attempt to quell inflation driven by the war in the Middle East. Policymakers lifted their key rate a quarter point, citing the conflict's impact on global energy prices. ECB President Christine Lagarde stated at a Berlin news conference that the conflict continues to generate inflation pressures.

The bank moderately raised its projections, forecasting inflation will remain above its 2 percent target through 2028. It also upgraded growth forecasts for this year and next due to better-than-expected economic resilience. However, the outlook remains highly uncertain.

Traders anticipate the bank will hold rates steady for much of the year before raising them twice by mid-2027. Meanwhile, global bond markets react to rising inflation, with Brent crude surpassing $100 a barrel and European natural gas prices more than doubling since the conflict began. The eurozone inflation rate climbed to 3.3 percent in August, primarily due to higher energy costs.

While the economy grew 0.6 percent in the second quarter, concerns persist about winter gas shortages and high heating costs. The ECB maintains it is well positioned to navigate the economic uncertainty.