The European Central Bank (ECB) kept borrowing costs unchanged at its March meeting, maintaining the deposit facility rate at 2%. Key policy rates, including the main refinancing operations (MRO) rate and marginal lending facility rate, also remained steady at 2.15% and 2.4%, respectively.
The ECB cited the war in the Middle East as a major source of uncertainty, warning of upside risks for inflation and downside risks for economic growth. The conflict is expected to have a material impact on near-term inflation through higher energy prices, with effects depending on the conflict's intensity and duration.
European natural gas futures surged over 30% to €74 per megawatt hour, the highest level in more than three years. Brent crude exceeded $119 a barrel, while WTI surpassed $96, driven by Iranian strikes on energy infrastructure.
Economists suggest that prolonged high energy costs could lead to broader price pressures and delay any rate cuts into 2027. Despite the hold, markets reacted cautiously, with European indices falling and bond yields rising.
The euro gained ground in early trading, while mortgage and loan rates for eurozone households and businesses will remain unchanged for now. However, expectations for potential rate hikes later this year have increased, reflecting shifting market sentiment.