ECB raises interest rates

Business Recorder reported that the European Central Bank raised its policy rate to 2.50 percent from 2.25 percent on Thursday, its second increase this year. The move aimed to ease an energy-driven rise in inflation linked to the Iran war, even as the bank warned that fuel prices could climb further. Oil has moved back above USD100 a barrel since late August, after the US and Iran struck military, shipping and energy assets.

The ECB now projects inflation at 3.0 percent for 2026, 2.5 percent for 2027 and 2.1 percent for 2028, while slightly lifting its growth forecasts on the economy's resilience. Lagarde said the bank had not discussed any future path, and traders increased bets on more hikes, pricing in 60 basis points of tightening by the April 2027 meeting. Economists quoted ahead of the decision expected Thursday's move to be the last for now, though a growing number see a risk that more tightening may be needed.

Yields on long-term government bonds have climbed to peaks not seen since the era before the global financial crisis, adding to financing pressure. Underlying inflation, which leaves out energy and food, dropped to 2.4 percent last month, and pay growth has moderated. Capital Economics' Andrew Kenningham said the energy shock is unlikely to trigger a wage-price spiral.