The European Central Bank (ECB) has followed the Bank of England (BoE) and the US Federal Reserve in keeping interest rates on hold.
The deposit rate has been left at 2%, the main refinancing rate at 2.15% and the marginal lending facility at 2.40% amid concerns that the ongoing conflict in the Middle East could drive up inflation through higher energy prices.
Investors will now focus on ECB president Christine Lagarde’s remarks during the press conference at 1.45pm for signals on the future path of policy.
Inflation in the eurozone stood at 1.9% in February, just below the central bank’s 2% target. However, markets have scaled back expectations for rate cuts in 2026, with growing bets on one or two rate rises this year.
It comes as Threadneedle Street also left interest rates unchanged on Thursday, while the Federal Reserve left interest rates on hold last night as it warned that the “implications of developments in the Middle East for the US economy are uncertain”.
Read more: Bank of England holds interest rates at 3.75% amid Iran conflict
Elsewhere, the Bank of Japan also left its lending rates unchanged overnight, following the same move from the Bank of Canada on Wednesday.
Traders have also dramatically ramped up bets on the BoE raising interest rates this year after the governor signalled on Thursday that he was “ready to act” to keep inflation down.
Money markets are pricing in two rate rises this year, compared to one before the decision, with a 50% chance that borrowing costs could be pushed up three times in the wake of the Iran war.
Read more: Oil prices soar following strikes on key energy facilities in the Middle East
It comes as Eurostat’s data revealed on Wednesday that the annual inflation rate in the euro area came in at 1.9% in February, up from 1.7% in January, . In the EU, the annual inflation rose to 2.1% in February, up from 2% in January.
Services saw the highest annual rate during the month at 3.4%, followed by food, alcohol, and tobacco at 2.5%, and non-energy industrial goods at 0.7%. On the other hand, energy prices decreased by 3.1% in the month.
Excluding the more volatile items of food, alcohol, tobacco and energy, core inflation rose to 2.4% from 2.2%, as expected.
Both the headline figure and core reading were in line with preliminary estimates released two weeks ago.
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