FRANKFURT, March 20 (Xinhua) -- The European Central Bank (ECB) on Thursday held key interest rates unchanged amid heightened geopolitical tensions in the Middle East.
While recent energy price hikes have not altered the bank's near-term baseline, the ECB said it is "closely monitoring" the aftermath of the war, which is expected to influence inflation and the euro area's economic outlook.
A UNANIMOUS DECISION
The central bank left unchanged its three key interest rates -- rates on the deposit facility, main refinancing operations and marginal lending facility were held at 2 percent, 2.15 percent and 2.40 percent, respectively.
The interest rates have been maintained at their current levels since June 2025. ECB President Christine Lagarde disclosed that the governing council members unanimously decided to leave the rates where they are.
Although the central bank had been claiming for months that it was "in a good place," it struck a different tone on Thursday amid renewed energy price spikes driven by the U.S.-Israeli war on Iran.
"The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth," the bank said in a statement.
ON HIGH ALERT
The ECB made clear it was not underestimating the impact of the war.
"We managed to make sure that the members of the governing council were extensively briefed by experts," Lagarde said, noting that the central bank will stick to its data-dependent approach, signaling heightened alertness.
"The risks to the growth outlook are tilted to the downside, especially in the near term," the bank said. "The war in the Middle East is a downside risk to the euro area economy, adding to the volatile global policy environment."
"A prolonged war could increase energy prices further and for longer than currently expected, and also weigh on confidence," it warned. "We are closely monitoring the situation, and our data-dependent approach will help us set monetary policy as appropriate."
Carsten Brzeski, global head of macro at ING Research, said, "The fact that the well-known 'monitor closely' or 'closely monitoring' is back is a clear signal that the ECB has shifted to higher alert."
RATE HIKES SPECULATION
Despite the steady rates, speculation is mounting over rate hikes at upcoming policy meetings in April and June.
"Against the backdrop of rising energy prices, inflation risks have increased significantly -- especially as the higher cost of living of recent years has become firmly embedded in consumers' minds," said Ulrike Kastens, a senior economist at DWS.
Though the ECB's deposit rate is expected to stay at 2 percent in the coming months, Kastens said, "the ECB would likely act more quickly today than it did in 2022 in order to counter rising inflation expectations at an early stage."
On the other hand, Carsten Brzeski from ING Research said that even if "an inflation wave is clearly in the making," he believes the bar for a rate hike will be higher than expected.
"In a scenario in which the war in the Middle East and soaring energy prices remain limited in time, the ECB will talk like a hawk but not walk like a hawk," Brzeski said. ■