ECB hikes rates as expected, but questions remain

The European Central Bank has voted to raise its key deposit rate by 25 basis points to 2.5% from 2.25% in a move widely expected by investors.

But uncertainty around the U.S.-Iran war continues to cloud the outlook for the ECB's longer-term policy path, market watchers say, and investors will be watching closely for signals in policymakers' remarks later on Thursday.

The ECB expects baseline inflation, excluding energy and food, to reach 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.

ECB president Christine Lagarde warned that the conflict in the Middle East and recent developments in Russia's war on Ukraine will keep headline inflation "well above target" the bank's 2% target for an extended period.