ECB catches markets off guard with first rate increase in almost three years

The European Central Bank raised interest rates by 25 basis points, delivering its first hike since September 2023. The ECB took its main refinancing rate to 2.40% and its deposit facility rate to 2.25%, pointing to renewed inflation pressure after an Iran conflict-driven energy shock lifted eurozone inflation to 3.2%. The move comes despite signs of a softer economy, with eurozone GDP shrinking 0.2% in the first quarter. Policymakers said the increase is intended to stop higher energy costs from feeding into broader, more persistent inflation.