The European Central Bank (ECB) has decided to raise its three key policy rates by 0.25 percentage points each, responding to persistent inflationary pressures and high energy prices fueled by the prolonged war between the United States and Iran. Following a monetary policy meeting held in Berlin rather than its Frankfurt headquarters, the central bank adjusted its deposit facility rate to 2.50%, the main refinancing rate to 2.65%, and the marginal lending facility rate to 2.90%. 

This marks the second rate hike by the ECB since the outbreak of the U.S.-Iran conflict. The central bank previously implemented a 0.25 percentage point increase in June—its first hike since 2023—before holding rates steady during its July meeting. The new 2.50% deposit rate represents the highest level seen since April of last year. 

In an official statement, the ECB's Governing Council noted that the ongoing Middle Eastern conflict continues to generate significant upward pressure on prices, keeping inflation well above target levels for an extended period. Driven heavily by surging energy costs, the eurozone's headline consumer price inflation jumped to a three-year high of 3.3% in August, maintaining a streak well above the ECB's 2.0% medium-term target. Compounding these concerns, international crude oil prices recently surpassed $100 a barrel following renewed military escalations between the U.S. and the Iranian Islamic Revolutionary Guard Corps (IRGC). 

With this latest adjustment, the gap between the ECB deposit rate and South Korea’s base rate (3.00%) narrowed to 0.50 percentage points, while the difference with the U.S. federal funds rate (3.50%–3.75%) stands at 1.00 to 1.25 percentage points.

Meanwhile, intensifying inflation concerns are placing mounting pressure on the U.S. Federal Reserve as well. The Federal Open Market Committee (FOMC) is scheduled to hold its next policy meeting on September 15–16. Markets are closely watching whether Fed leadership, under newly appointed Chair Kevin Warsh—who recently emphasized the need to bring U.S. inflation down from 3.7% to the 2% target—will follow suit with a rate increase.

[Copyright (c) Global Economic Times. All Rights Reserved.]