European Central Bank keeps rates unchanged again at 2% amid Mideast war, inflation worries

- Central bank says Middle East war has made outlook 'significantly' more uncertain, creating upside risks for inflation and downside risks for economic growth

ISTANBUL

The European Central Bank (ECB) on Thursday left its three key interest rates steady and warned that the Middle East war has made the outlook significantly more uncertain, with both higher inflation and weaker growth risks.

The key deposit rate stands at 2%, its lowest level since November 2022.

The interest rates on the main refinancing operations and the marginal lending facility are at 2.15% and 2.40%, respectively.

The decision to keep rates unchanged marked the sixth consecutive hold. The bank last lowered rates at its June meeting, completing an eight-cut cycle that began when the ECB launched its easing phase in June 2024.

The bank said the war in the Middle East has made the outlook "significantly" more uncertain, creating upside risks for inflation and downside risks for economic growth.

"It will have a material impact on near-term inflation through higher energy prices," the bank said, adding that the conflict's medium-term implications will depend both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy.

The bank stressed that it is determined to ensure that inflation stabilizes at its 2% target in the medium term.

Eurozone's annual inflation was up to 1.9% in February, rising from 1.7% in January, still below the ECB's medium-term target of 2%.

The decision came as the US and Israel have continued a joint offensive on Iran since Feb. 28, killing so far over 1,300 people, including then-Supreme Leader Ali Khamenei.

Iran has retaliated with drone and missile strikes targeting Israel, Jordan, Iraq, and Gulf countries hosting US military assets, causing casualties and damage to infrastructure while disrupting global markets and aviation.