The European Central Bank raised its key interest rate by a quarter point on Thursday, lifting the deposit facility rate to 2.25% and marking its first tightening cycle since 2023.
The decision signals a decisive pivot from the April meeting, where policymakers held rates steady despite a sharp surge in euro-zone inflation.
The governing council cited the persistent inflationary pressure stemming from the ongoing war in Iran as the primary driver for the move.
Energy costs have surged as the conflict disrupts supply chains and raises risk premiums across global markets, forcing the ECB to prioritize price stability over growth concerns.
The central bank has signaled it will take necessary measures to anchor inflation expectations, a stance reinforced by recent remarks from Bank of France Governor Francois Villeroy de Galhoud.
This tightening move comes as the ECB navigates a complex macroeconomic landscape where geopolitical shocks are directly feeding into domestic price indices.