The U.S. Federal Reserve, the European Union, the UK, Japan, and other central banks all announced no change to interest rates, narrowing the PBOC’s room for rate cuts.

Third, while the U.S. Federal Reserve held rates steady, major Western central banks—including the European Central Bank (ECB), the Bank of England, and the Bank of Japan—also announced unchanged interest rates. At the same time the Fed decided to hold rates steady, the ECB likewise opted to maintain its key interest rates at its latest monetary policy meeting, citing the Iran war as rendering the economic outlook 'significantly more uncertain.' According to the ECB, the conflict poses 'upside risks to inflation and downside risks to economic growth.' The ECB stated that prolonged hostilities would substantially impact short-term inflation via rising energy prices; their medium-term effects, however, depend on the intensity and duration of the conflict, as well as how energy price increases feed into consumer prices and the broader economy. This statement prompted traders to increase bets on a potential ECB rate hike later this year. Prior to the outbreak of the Iran war at the end of February, the ECB’s inflation outlook had been relatively moderate. Yet the conflict has disrupted economic equilibrium, threatening Europe’s energy supply, economic growth, and consumer price stability. Expectations for interest rates across the continent have been completely upended. Currently, eurozone inflation remains close to the ECB’s 2% target. According to the latest flash estimate from Eurostat, eurozone inflation rose to 1.9% year-on-year in February, up from 1.7% in January. At its February meeting, ECB President Christine Lagarde reiterated her characterization of the eurozone’s economic outlook as being 'in good shape,' but cautioned against complacency. Her prudence now appears fully justified. Markets will closely monitor the ECB’s guidance and its upcoming press conference for clues on how the bank intends to respond to Iran’s closure of the Strait of Hormuz—which is reducing regional oil and gas supplies, driving up energy costs, and intensifying inflationary pressures. Given the war’s ongoing impact on inflation and growth prospects, the Bank of England, Sweden’s Riksbank, Switzerland’s SNB, and the Bank of Japan also chose to hold rates steady on Thursday. The Bank of England’s Monetary Policy Committee voted unanimously on Thursday to keep its benchmark interest rate unchanged at 3.75%. Prior to the outbreak of the Iran war at the end of February, the Bank of England had expected to cut its key rate at its March meeting. However, the conflict triggered a sharp surge in global energy prices. The Bank noted: 'The Middle East conflict has caused substantial increases in global energy and other commodity prices, affecting household fuel and utility bills directly and business costs indirectly. As a result of this new economic shock, CPI inflation will rise in the near term. Domestic inflationary pressures—potentially amplified by second-round effects through wages and pricing behavior—must be carefully monitored…'

Exness: Probability of a 25-basis-point ECB rate hike remains high; persistent inflation risks still loom

At 20:15 tonight, the European Central Bank (ECB) will announce its September interest rate decision. Market consensus expects the ECB to raise all three key policy rates by 25 basis points, bringing the deposit facility rate, main refinancing rate, and marginal lending facility rate to 2.5%, 2.65%, and 2.9%, respectively. At 20:45, ECB President Christine Lagarde will hold a monetary policy press conference; markets will closely watch her comments on inflation outlook and future interest rate trajectory. A key driver behind heightened expectations for an ECB rate hike remains persistent inflationary pressure. Currently, the conflict between the United States and Iran has become the most closely watched global economic risk event. Mutual attacks on tankers and infrastructure have hampered the recovery of international crude oil supply. Brent crude—the pricing benchmark for European oil—has breached USD 100 per barrel, while natural gas prices have surged above EUR 80, reaching their highest level since 2023. Given the current situation, the U.S.–Iran conflict is unlikely to subside in the near term, and European countries’ inflation rates may continue rising in tandem with international energy prices. Figure 1: Brent Crude Oil Price (gray) vs. Eurozone CPI Annual Rate As shown in the figure, movements in crude oil prices have largely dictated key turning points in eurozone inflation—and often precede changes in inflation data. With Brent crude surpassing USD 100 per barrel, market expectations for a swift resolution to the U.S.–Iran conflict have significantly cooled, shifting instead toward concerns that this Middle Eastern dispute could persist for years—similar to the Russia–Ukraine war. Trump’s advisors—including Vice President Vance and Secretary of State Rubio—have indicated that the Iran issue may extend through the remainder of Trump’s term. Trump himself believes the conflict will conclude after the U.S. midterm elections, scheduled for November 3—just two months away. During this period, U.S. and Brent crude prices may remain relatively elevated, potentially pushing eurozone inflation to levels warranting heightened vigilance. Another question worth considering: Will the euro necessarily appreciate following an ECB rate hike? The answer is not certain. Euro exchange rate movements primarily hinge on the U.S. Dollar Index, which in turn is influenced by Federal Reserve policy and U.S. Treasury yields.

Lagarde Warns Iran War Risks Euro Zone Growth and Energy-Driven Inflation

Apr 17, 2026

ECB President Christine Lagarde warned that the Iran war could increase energy prices and inflation risks while slowing euro zone growth, though immediate interest rate hikes are not currently deemed urgent.

reuters

2026-04-17

Lagarde Warns Iran War Risks Euro Zone Growth and Energy-Driven Inflation

Lagarde Warns Iran War Risks Euro Zone Growth and Energy-Driven Inflation

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