European Central Bank Leaves Rates Unchanged Amidst Heightened Geopolitical Tensions

FRANKFURT, March 20 (Bernama-Xinhua) -- The European Central Bank (ECB) on Thursday kept key interest rates unchanged as heightened geopolitical tensions weigh on the outlook of inflation and economy in the euro area, reported Xinhua.

The interest rates on the deposit facility, through which the central bank steers its monetary policy, remains unchanged at 2 per cent.

"The war has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth," said the ECB in a press release.

The United States and Israel launched massive attacks on Iran on Feb 28, disrupting global shipping, sending oil prices soaring and shaking the global economy.

European gas and oil prices rose sharply in early trading on Thursday. The Dutch TTF benchmark, a key reference for European gas supply contracts, surged more than 30 percent to 70.7 euros (US$81.3) per megawatt-hour at the open, before easing to around 67 euros (US$77) per megawatt-hour. The price has more than doubled from around 32 euros (US$37) megawatt-hour before the conflict began.

Oil prices also moved higher. Brent crude, the international benchmark, rose to above 116 dollars per barrel in early trading.

According to the latest projections published by the ECB, inflation expectations have been revised up and economic growth expectations have been lowered especially for 2026, "reflecting the global effects of the war on commodity markets, real incomes and confidence."

Euro area inflation is projected to average 2.6 per cent in 2026, while economic growth for this year is expected stand at 0.9 per cent, the ECB said.

Price hikes can be even reinforced if energy price hike spills over to non-energy inflation to a larger extent than expected or the war disrupts global supply chains more broadly, according to the ECB.

The ECB insists that it is "well-positioned to navigate this uncertainty", citing well-anchored longer-term inflation expectations and resilient economy.

Carsten Brzeski, global head of macro at ING Research, commented in a note that the war in the West Asia "has changed everything" and rate hikes, instead of rate cuts, might be on the table again as "the war in West Asia and surging oil prices have clearly put it on high alert." 

--BERNAMA-XINHUA