ECB raises key rate to 2.5% as inflation outlook hardens

The ECB raised its key deposit rate by a quarter point to 2.5%, the second increase in three months, saying an energy shock is likely to leave euro-area inflation above its 2% target for longer. The deposit rate is the central bank’s main lever for borrowing costs: raising it tends to make loans pricier, cooling demand and limiting the risk that a jump in energy bills feeds through into wages and other prices. President Christine Lagarde portrayed the decision as obvious, and the ECB lifted its 2027 inflation forecast to 2.5%. The bank has not promised another rise and will decide meeting by meeting, but its tougher outlook has led markets to expect more tightening—meaning households and businesses could face still-higher borrowing costs.