Frankfurt [Germany], June 11, (ANI): The European Central Bank (ECB) hiked key interest rates for the first time in nearly three years, responding to inflation pressures emanating from the Middle East conflict.

The ECB raised all three key interest rates by 25 basis points taking the deposit facility to 2.25 per cent, refinancing rate to 2.4 per cent and marginal lending facility to 2.65 per cent. The bank also raised its inflation projections for 2026-27 owing to a higher path for energy prices which could feed into food, goods and services inflation, ECB said.

'In the baseline of the new Eurosystem staff projections, headline inflation is expected to average 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028. For inflation excluding energy and food, the baseline foresees an average of 2.5% in 2026 and 2027 and 2.2% in 2028,' the ECB said in a release.

The rate hike comes even as concerns around growth linger with rising prices posing a challenge for households. Inflation in the 21-country currency bloc is above 3 per cent, beyond the ECB's target of 2 per cent.

The economic growth projections have also been revised downwards for 2026 and 2027. The bank project economic growth at an average of 0.8 per cent in 2026 and 1.2 per cent in 2027 and 1.5 per cent in 2028. The central bank said that the revised outlook for growth reflects the impact of war on commodity markets, real incomes and confidence.

'The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth. The full implications of the war for medium-term inflation and growth will depend on the intensity and duration of the energy price shock, as well as the scale of its indirect and second-round effects,' ECB said.

The prolonged closure of the Strait of Hormuz has jolted the energy markets triggering inflation concerns globally. US consumer price index came in hot at 4.2 per cent on Wednesday raising worries for the newly-appointed US Federal Reserve chairman Kevin Warsh as he heads into his maiden policy meeting June 16-17. (ANI)