The European Central Bank raised interest rates on Thursday for the second time this year, as renewed Middle East fighting fans fears of higher inflation, and opened the door for further hikes.

As widely anticipated, the central bank for the 21 eurozone nations lifted its benchmark rate a quarter percentage point to 2.5 percent, its highest level since March last year.

It was the ECB's second increase this year after policymakers lifted borrowing costs in June for the first time since 2023 in response to the energy shock triggered by the US war on Iran.

With renewed energy price rises set to push eurozone inflation even higher, President Christine Lagarde told a press conference that the unanimous decision by the ECB's governing council had been a "no-brainer."

"The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period," she said in Berlin, where rate-setters were meeting on one of their trips away from the ECB's Frankfurt headquarters.

Markets are pencilling in further hikes but Lagarde, as usual, declined to give clear guidance, saying the outlook was too unclear to plot a path ahead.

But the ECB hiked its growth forecasts for this year to 0.9 percent and for next year to 1.4 percent, underlining that the eurozone economy has withstood the Middle East war energy shock better than feared.

Lagarde said the near-term economic outlook had "improved", adding: "We have been surprised by the resilience of our economy."

The central bank also raised its inflation projections for 2027 and 2028, while maintaining this year's at three percent. (AFP)



Edited by Robert Kemp