ECB Raises Rates for First Time in Three Years... First Among Major Economies After Iran War

Deposit Facility Rate Raised by 0.25 Percentage Points

The European Central Bank (ECB) raised its three key policy rates by 0.25 percentage points each on June 11 (local time) amid concerns over inflation stemming from the Middle East.

Following its monetary policy meeting in Frankfurt, Germany, the ECB announced that it would raise the deposit facility rate from 2.00% to 2.25% per annum, and increase the main refinancing rate and the marginal lending facility rate to 2.40% and 2.65%, respectively.

This marks the ECB's first interest rate hike in two years and nine months since September 2023. The ECB had lowered its benchmark deposit facility rate, which serves as a reference for monetary policy, from 4.00% at the time to 2.00% in June of last year, but has now shifted to a tightening stance after one year.

Eurotower located in Frankfurt am Main, Germany. It is used as the building of the European Central Bank (ECB). (Photo by ECB)

Since the surge in global prices triggered by rising energy costs following the outbreak of war in the Middle East at the end of February, the ECB has become the first central bank among the G7 economies to raise interest rates.

The ECB stated, "The war in the Middle East is exerting upward pressure on prices," and added, "With today's decision, we are well positioned to navigate the uncertainty resulting from the war."

Reflecting the inflation trend, the ECB revised its eurozone (21 countries using the euro) consumer price inflation forecast for this year from 2.6% to 3.0%, and for next year from 2.0% to 2.3%.

The economic growth outlook was slightly lowered, from 0.9% to 0.8% for this year, and from 1.3% to 1.2% for next year.

With this rate hike, the gap between the ECB's benchmark deposit facility rate and South Korea's base rate (2.50%) has narrowed to 0.25 percentage points, and the gap with the United States (3.50–3.75%) has narrowed to 1.25–1.50 percentage points. The new rates will take effect starting June 17.

This content was produced with the assistance of AI translation services.