Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The European Central Bank has kept its benchmark interest rate on hold at 2 per cent for the sixth meeting in a row as policymakers assess the impact from soaring energy prices on inflation and growth.
Thursday’s decision, which was in line with economists’ expectations, followed warnings from other central banks including the Federal Reserve that the Iran war will push up inflation.
European gas prices surged 25 per cent on Thursday morning and oil hit $115 a barrel as strikes on energy infrastructure in the Gulf escalated.
ECB chief economist Philip Lane warned earlier this month that a persistent fall in oil and gas supplies from the region could cause a “substantial spike” in consumer prices and a “sharp drop in output”.
Short-term inflation expectations have raced higher on surging energy prices. One-year euro inflation swaps, which show the market’s near-term expectation of price rises, have jumped from below 2 per cent early this year to 4 per cent on Thursday.
Annual inflation in the Eurozone rose to 1.9 per cent in February, slightly below the ECB’s 2 per cent target.
Traders have sharply reversed their bets on the path of interest rates in many leading economies this year.
Before Thursday’s decision, they had priced in two full quarter-point increases by the ECB by October, according to Reuters data, with the first rise expected during the summer. Before the war, traders had bet that borrowing costs would remain unchanged this year.
The ECB has left borrowing costs at 2 per cent since June 2025.