European central banks hold rates as Iran war fuels inflation fears

Thursday 19 March 2026 - 15:20

By: Dakir Madiha

European central banks hold rates as Iran war fuels inflation fears

Major European central banks kept interest rates unchanged on Thursday as rising energy prices linked to the conflict with Iran raised concerns about renewed inflation across the region.

The European Central Bank held its deposit rate at 2 percent for the sixth consecutive meeting, while the Bank of England, the Swiss National Bank, and Sweden’s Riksbank also maintained their respective rates. The coordinated pause reflects caution among policymakers as geopolitical tensions reshape economic expectations.

The surge in energy prices has been a key driver of uncertainty. Attacks on energy infrastructure in the Gulf have pushed Brent crude to around $119 per barrel, while wholesale natural gas prices in Europe have risen by as much as 25 percent. The situation echoes the 2022 energy crisis, though current gas storage levels in Europe are significantly lower than in previous years, increasing vulnerability to supply disruptions.

Market expectations for monetary policy have shifted sharply. Earlier in the year, investors anticipated potential rate cuts from the ECB. Now, traders are pricing in at least one rate increase by the end of 2026, with some expecting more. Economists, however, still largely forecast that rates will remain stable, reflecting uncertainty over how long the energy shock will persist.

Inflation in the eurozone has already begun to edge higher. Annual inflation rose to 1.9 percent in February from 1.7 percent in January, while core inflation increased to 2.4 percent. These figures do not yet fully capture the impact of recent energy price increases, suggesting further upward pressure may follow.

In the United Kingdom, the Bank of England kept its benchmark rate at 3.75 percent, with policymakers noting that rising energy costs have reduced the likelihood of near-term rate cuts. The Swiss National Bank maintained its rate at 0 percent, and Sweden’s central bank held its rate at 1.75 percent for a fourth consecutive month.

ECB President Christine Lagarde signaled a cautious approach, stating that the central bank would act to contain inflation but must account for high uncertainty. Officials are assessing multiple scenarios depending on how long the conflict lasts and how deeply it affects the economy. Some policymakers have adopted a more restrictive stance, suggesting that further tightening could be considered if inflation pressures persist.

The impact is already visible for consumers. Fuel prices across the European Union have risen by about 8 percent, with increases reaching up to 14 percent in Germany in recent weeks. Businesses are also facing higher energy costs, adding pressure to broader price levels.

The key question for policymakers is whether the energy shock will prove temporary or become embedded in inflation trends. The answer is likely to shape monetary policy decisions across Europe for the remainder of 2026.