ECB raises key interest rates by 0.25% amid ongoing Middle East conflict-driven inflationary pressures
The European Central Bank (ECB) has increased key interest rates by 0.25 percentage points due to persistent inflation exacerbated by the ongoing conflict in the Middle East, ECB Governing Council member and Central Bank of Cyprus Governor Christodoulos Patsalides said. The move follows data confirming higher inflation forecasts tied mainly to energy shocks and stronger economic growth.
Patsalides highlighted that despite tighter financial conditions and elevated long-term bond yields, inflation is expected to remain high for a prolonged period. The ECB remains focused on reaching its 2% medium-term inflation target, with no significant second-round inflation effects observed yet.
Regarding Cyprus, Patsalides noted the economy's resilience supported by strong services, private consumption, labor market, and public finances. Inflation in Cyprus rose to 5.2% in August 2026, driven mainly by services and energy prices, fueled by domestic demand and tourism. Inflation is expected to ease gradually post-2026, but risks remain tilted to the upside.
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