For the first time since 2023! The situation in Iran has raised inflation, and it is almost certain that the European Central Bank will raise interest rates tonight.

The European Central Bank will announce interest rate decisions at 20:15 on Thursday Beijing time. Due to the escalation of the situation in Iran pushing up inflation, the European Central Bank may raise interest rates for the first time since 2023. Surveys show that economists generally expect the European Central Bank to raise the deposit rate by 25 basis points to 2.25%. This will make the European Central Bank the first major central bank in the world to raise interest rates due to the Iran conflict. Like their peers in the United States and the United Kingdom, Eurozone policymakers have been hesitant, hoping this round of inflation is only temporary. However, as peace talks progress slowly and signs of price increases beyond energy emerge, the market is beginning to anticipate that the European Central Bank may not tighten monetary policy again this year. Economists predict that the European Central Bank will raise interest rates in June and September. New quarterly forecasts may indicate that after inflation reached 3.2% in May, it may accelerate further. Analysts expect significant upward revisions in inflation expectations for this year and next year, as well as the closely watched potential inflationary pressures. However, a survey shows a decline in business activity in May. The weak economic outlook complicates the European Central Bank's decision-making. Emma Moriarty, portfolio manager at CG Asset Management Limited, said, "The European Central Bank is clearly weighing the pros and cons, and the reality is that inflation is rising. The Middle East crisis and its impact on energy markets now appear to be more enduring than they can bear." Half an hour after the European Central Bank announces interest rate decisions, ECB President Christine Lagarde will hold a press conference. Interest Rates After Thursday, investors expect the European Central Bank to raise interest rates at least once this year, pushing rates to the upper limit of the neutral rate range. This is similar to the "moderate adjustment" mentioned by Lagarde, which may be necessary to address significant but not lasting overshoot of inflation. Economists David Powell and Simone Del Giuaye stated, "The European Central Bank is almost certain to raise interest rates by 25 basis points at the June 10-11 meeting. As for President Lagarde's stance on the next steps of the Governing Council, it is currently unclear. We believe she will be more explicit this time than before, indicating that a second rate hike may be brewing." It is understood that a consensus among policymakers, from hawkish Executive Board member Isabel Schnabel to dovish Greek central bank governor Yannis Stournaras, is that the European Central Bank cannot afford to turn a blind eye to the current energy shock and must maintain market confidence in the commitment to the 2% inflation target. While an interest rate hike by the European Central Bank this week seems likely, most policymakers remain cautious about the next steps. Lithuanian central bank Governor Gediminas Simkus has stated definitively that the likelihood of another rate hike is higher than not. Lagarde may continue to remain ambiguous, emphasizing continued focus on the latest data. However, she will likely avoid appearing complacent and will continue to exercise caution, as officials concluded at the April meeting, which is necessary. Economic Outlook New forecast data may see significant revisions. Analysts expect the European Central Bank to raise inflation expectations for 2026 and 2027, while lowering economic growth expectations. Part of the reason is the rise in oil prices, with the expectation that the duration of high oil prices will be longer than previously anticipated at the outbreak of the Iran conflict. Meanwhile, the market expects monetary policy to be tighter than it was in March, which will also have an impact. The European Central Bank may raise inflation expectations and lower economic growth expectations by 2028. The economic growth situation is more complex. Due to significant fluctuations in Irish economic data, Eurozone GDP declined by 0.2% in the first quarter, far below the European Central Bank's expectations in March. New Appointments Lagarde will be co-hosting the press conference with a new second-in-command. This month, Boris Vujcic from Croatia assumed the position of Vice President of the European Central Bank, replacing Luis de Guindos, who had been responsible for financial stability and banking issues for the past eight years. The 27-member Governing Council has also welcomed new members. These include Emmanuel Moulin, who replaced Franois Villeroy de Galhau as the Governor of the Bank of France this month, and Uro Cassick, an Estonian official who replaced Madis Muller. However, Ante Zigman, who was selected as the Governor of the Croatian Central Bank, will not be attending the meeting as parliament has not yet voted to confirm his candidacy.