European Central Bank holds rates steady, warns outlook is 'significantly more uncertain'

The European Central Bank opted to keep interest rates on hold at its latest monetary policy meeting, saying the war in Iran has made the outlook “significantly more uncertain, creating upside risks for inflation and downside risks for economic growth.”

The ECB said the ongoing conflict “will have a material impact on near-term inflation through higher energy prices” while its medium-term implications would depend “both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy.”

The ECB was the last of several regional central banks to opt on Thursday to stand pat, with the Bank of England, Sweden's Riksbank and Swiss National Bank all holding firm as the war clouded the outlook for inflation and growth.

Before the war on Iran began in late February, Europe's central banks enjoyed a more benign inflation outlook as interest rates looked set to remain stable or keep falling across the region.

But the conflict has upset the economic equilibrium, threatening Europe's energy supplies, growth and the outlook for consumer prices. Expectations for interest rates across the continent have been upended.

Even before the war began, the ECB was not expected to change stance on its benchmark interest rate, with euro zone inflation data remaining near the central bank's 2% target. The latest flash data from Eurostat showed inflation in the euro zone rose to 1.9% in February, up from 1.7% in January.

ECB President Christine Lagarde had, at the central bank's last meeting in February, repeated a mantra that the euro zone's economic outlook was “in a good place” but warned against complacency. Her caution now appears to be well-founded.