ECB Hikes, Sees Higher Inflation, Lower Growth as Middle East Conflict Deepens

The ECB raised rates by 25 bps as expected, lifting the deposit rate to 2.25% and the main refinancing rate to 2.40%, while warning that the Middle East conflict is adding to eurozone inflation pressures through higher energy costs and broader pass-through into food, goods, and services. New staff projections were revised up for headline and core inflation in 2026-27, while GDP growth forecasts were cut, reinforcing a stagflationary backdrop. The central bank stopped short of signaling another hike and reiterated a data-dependent, meeting-by-meeting approach. For Europe 50, the message is mildly negative: higher rates and weaker growth outlook can weigh on cyclicals and broader equity sentiment, even as the ECB’s cautious stance limits immediate hawkish surprises.