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The ECB concluded its March meeting without altering borrowing costs, leaving the deposit facility rate at 2%, a move that had been priced in by almost all analysts.
Other key policy rates, namely the main refinancing operations (MRO) rate and the marginal lending facility rate also remain unchanged at 2.15% and 2.4% respectively.
According to the ECB’s statement “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’s governing body considers that the Iran war “will have a material impact on near-term inflation through higher energy prices. Its 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 timing of the hold is notable. This Thursday, European natural gas futures jumped over 30% reaching as much as €74 per megawatt hour, the highest price in more than three years.
Brent crude pushed past $119 a barrel and WTI exceeded $96. These moves stem from Iranian strikes on critical energy sites in the Middle East, raising fears of prolonged supply strains.
Economists tracking the situation note that if such costs remain elevated for several months, they could feed into broader price pressures and delay any future easing well into 2027.
The decision comes after the February announcement which also left rates untouched and reiterated the ECB’s commitment to bringing inflation sustainably back to its 2% target over the medium term.
Market reaction
Financial markets opened the day on the back foot, with major European indices posting early losses as investors weighed the energy shock against the ECB’s anticipated decision.
The euro edged higher in early trading while government bond yields showed modest increases.
For households and businesses across the 21-country eurozone bloc, today’s decision means mortgage and loan rates linked to ECB policy will stay where they are for now.
Yet, the tone from Christine Lagarde could still influence longer-term expectations.
Money-market contracts have already shifted in light of the Iran war, pricing in the possibility of one or even two rate hikes later this year rather than the cuts that dominated forecasts just a few weeks ago.
