ECB likely to hold rates amid Iran war inflation risks
The European Central Bank (ECB) is expected to keep interest rates unchanged this week as policymakers assess whether the recent inflation surge triggered by the Middle East conflict will be temporary or begin to weigh on economic growth, News.Az reports, citing AFP.
Markets have increased expectations of potential future rate changes after the US-Israeli war on Iran triggered a global energy shock, which has already started pushing up consumer prices across the eurozone.
Inflation in the 21-country eurozone rose to 2.6 percent in March, exceeding the ECB’s two percent target. The central bank has warned that inflation could rise significantly further under a worst-case scenario.
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ING economist Carsten Brzeski said the ECB’s previous position that it was in a “good place” on interest rates no longer holds.
“The bank is back in crisis mode, shifting its focus from longer-term projections to actual developments and back to a ‘driving at sight’ approach,” he said.
Despite this, economists broadly expect the ECB to keep its deposit rate at two percent at its meeting on Thursday. The rate has remained unchanged since June last year, as policymakers wait to see how the conflict develops.
US President Donald Trump has extended a ceasefire with Iran to allow additional time for peace negotiations. While most strikes in the region have eased, the Strait of Hormuz remains largely closed to tanker traffic.
Economists note that, unlike the aftermath of Russia’s 2022 invasion of Ukraine, energy prices have not risen as sharply and supply chains have not experienced the same level of disruption.
By Nijat Babayev
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