The key interest rates are expected to be raised at today's meeting of the European Central Bank (ECB), after representatives of the institution involved in determining its monetary policy earlier declared readiness to raise rates to counter rising inflation in the eurozone due to high energy prices, BTA reported.
The key interest rates of the ECB - on the deposit facility, the main refinancing operations and the marginal lending facility - have not been changed for a year. In June 2025, the bank cut rates by 25 basis points (0.25 percent), bringing the deposit rate to 2 percent, the main refinancing rate to 2.15 percent, and the marginal lending rate to 2.4 percent.
The ECB maintained these interest rates at its next seven consecutive meetings.
However, the US-Israeli conflict against Iran, which has been ongoing for more than three months now, has changed economic conditions by blocking energy and other raw material supplies from the Persian Gulf. This has led to a sharp increase in energy prices around the world, and in particular in the euro area.
Annual inflation in the currency union gradually declined to the ECB's target of 2 percent last year, and in the first months of 2026 even fell below this level. In January, inflation in the euro area eased to 1.7 percent, and in February it rose slightly - to 1.9 percent, according to Eurostat data based on the Harmonized Index of Consumer Prices (HICP).
However, the war in the Middle East that began at the end of February increased energy prices and darkened the inflation outlook.
Although energy prices in the euro area had been falling in previous months, they rose by 5.1 percent on an annual basis in March, by 10.8 percent in April, and by 10.9 percent in May.
The situation with the pace of consumer prices developed along a similar trajectory - in March the indicator accelerated to 2.6 percent, in April to 3 percent, and according to preliminary Eurostat data, inflation in the euro area reached 3.2 percent last month - the highest since September 2023.
ECB officials have expressed concern about inflation, with some supporting the position that an increase in interest rates is necessary.
The oil price shock resulting from the war in Iran and the resulting inflationary pressure will likely soon have a direct impact on the ECB's monetary policy, said last week the governor of the Austrian National Bank and member of the ECB's Governing Council Martin Kocher.
According to him, with the situation in the Middle East unchanged, it will be difficult to avoid an interest rate increase. He indicated that it is possible that the bank will increase interest rates by a quarter of a percentage point at today's meeting, but did not rule out a more serious increase.
Earlier, the member of the bank's Executive Board Isabelle Schnabel said that the ECB should raise its main interest rates in June, even if peace talks between the United States and Iran lead to a peace agreement.
“Given the scale and duration of the current crisis, I think we can no longer afford to ignore it“, Schnabel pointed out. “From today's perspective, I think that an interest rate increase will be necessary in June“, she indicated.
Meanwhile, the governor of the German central bank “Bundesbank“ (Bundesbank) Joachim Nagel hints at rate hike.
Nagel said authorities "cannot ignore high energy prices."
"An interest rate hike is becoming increasingly likely unless the inflation situation changes fundamentally," the Bundesbank governor said.
ECB President Christine Lagarde stressed last month that the inflation situation must be carefully assessed so as not to act too early or too late on interest rates. However, she declined to comment on whether the ECB would raise interest rates, as many analysts expect.
The Governor of the Bulgarian National Bank (BNB) and member of the ECB Governing Council Dimitar Radev said in late May that the Frankfurt monetary institution should not wait too long to react to the consequences of the war in Iran.
„At this stage, the compromise is not symmetrical, when there is a risk that inflation expectations will lose their stability. The cost of late action may exceed the cost of acting a little earlier,“ Radev pointed out.
Also at today's meeting, the ECB is expected to revise its forecasts for economic growth and inflation in the eurozone.
According to the financial institution's chief economist, Philip Lane, inflation forecasts in the eurozone will likely be raised due to tensions related to the war in the Middle East.
“We will probably raise our inflation forecasts again in June“, Lane said, but without taking a position in favor of raising interest rates.
In its spring economic forecasts published last month, the European Commission raised its expectations for inflation growth in the euro area - to 3 percent in 2026 and 2.3 percent in 2027, after its previous forecast predicted 2 percent for both years.
In terms of economic growth in the euro area, the EC reduced its forecast - to 0.9 percent in 2026 and 1.2 percent in 2027, compared to the autumn, when it expected the economy to grow by 1.2 and 1.4 percent, respectively.
“Compared to March, we expect ECB experts to lower their growth forecasts for 2026-2027 and raise forecasts for both headline and core inflation, reflecting a longer-lasting energy shock and a stronger indirect impact on prices,“ explained Goldman Sachs“s chief economist for Europe Sven Jari Sten, quoted by CNBC.
“The forecasts for core inflation will be more interesting, especially for 2027,“ commented Anatoly Annenkov, senior economist for Europe at Societe Generale.
“This forecast will tell us a lot about the ECB team's confidence in the upcoming second-round effects, especially given the weakening data on economic activity since March,“ he added.