The European Central Bank kept interest rates unchanged, with officials signaling they need more time to assess the extent of the Iran war’s jolt to the economy.
The deposit rate was left at 2%, where it’s been since June 2025 and in line with the predictions of all analysts in a Bloomberg survey. The ECB offered no guidance on future decisions, reiterating it will act one meeting at a time based on information as it arrives.
“The upside risks to inflation and the downside risks to growth have intensified,” the Governing Council said on Thursday in a statement. “The Governing Council remains well positioned to navigate the current uncertainty.”
Luxembourg inflation to hit 5.2% in April, Eurostat says
While policymakers have stressed since the conflict broke out that they’ll act decisively if inflation shows signs of spiraling, data available so far haven’t convinced them. The ECB isn’t alone in holding fire: The Federal Reserve sat tight on Wednesday and the Bank of England decided against a move earlier on Thursday.
The ECB is also mindful of the blow to output, with data published shortly before its rate announcement showing first-quarter gross domestic product grew by a less-than-expected 0.1% in the euro zone — feeding stagflation fears.
Markets reckon officials will focus on the upswing in prices, which jumped by 3% in April — the quickest since the autumn of 2023 — due to the ramp-up in energy costs. Traders are fully pricing three quarter-point increases in borrowing costs by year-end.
Heading into this week’s meeting, policymakers said two months of fighting in the Middle East and a continued blockade of the Strait of Hormuz have left the 21-nation euro zone somewhere between the ECB’s baseline and a more gloomy outcome presented in March.
Europe faces price volatility, not oil shortages, says economist
The base case assumes oil costs averaging $81.3 (€69.50) a barrel in 2026 whereas the adverse scenario sees Brent crude coming close to $120 (€103) this quarter. Oil touched a four-year high of more than $126 (€108) earlier Thursday.
Officials will be handed fresh forecasts in June, when economists and investors reckon they’ll opt to hike. By then, some uncertainty over the duration and economic impact of the conflict may have dissipated.
For the moment, the US and Iran are at loggerheads over whether a reopening of the strait is a prerequisite — or an eventual consequence — of a peace deal.
