European Central Bank Holds Rates Steady

Foreign Affairs State of the Union: The Iran War continues to drive higher energy prices and broader inflation. The European Central Bank (ECB) left interest rates unchanged at its meeting Thursday, pointing to uncertainty over the Iran War's impact on energy markets. The bank kept its benchmark deposit rate at 2.25 percent, with its main refinancing and marginal lending rates remaining at 2.40 percent and 2.65 percent, respectively. Subscribe Today Get daily emails in your inbox The ECB assessed that energy prices remain volatile and consistently elevated when compared to pre-war conditions, noting in a statement that “uncertainty remains high and the full inflationary impact of the energy shock has yet to play out.” The bank also said it was “closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects.” Inflation in the Eurozone dipped slightly in June to 2.8 percent, down from 3.2 percent in May. The ECB has a target inflation rate of 2 percent for its monetary policy decisions. Energy prices remain a major driver of high inflation in the Eurozone, with Brent crude oil hitting $100 a barrel following the resumption of hostilities in the Middle East earlier this month. A further intensification of the war, with the attendant additional pressure on energy prices, could prompt the ECB to raise rates in the future.