ECB to Hold Key Rate at 2% Amid Iran Conflict Inflation Risks

The European Central Bank is set to maintain its key interest rate at 2 percent when it announces its policy decision on Thursday in Frankfurt, amid heightened concerns that the ongoing conflict in Iran could drive sustained inflation across the euro zone through elevated energy prices.

The decision comes as oil and natural gas prices have surged since U.S. and Israeli attacks on Iran began on February 28, disrupting supplies and raising costs for the 21-nation bloc, which depends heavily on imported fuel. Brent crude has climbed above 100 dollars per barrel, up more than 40 percent since the conflict started, while European gas prices have risen around 60 percent this month. Central bankers have warned that these increases could push headline inflation above 3 percent over the next year, with a gradual return to the ECB's 2 percent target only over four years. The closure of the Strait of Hormuz has exacerbated supply constraints, amplifying risks to consumer prices and economic growth.

ECB President Christine Lagarde and her colleagues are expected to emphasize vigilance without committing to immediate action, given the uncertainty over the conflict's duration. "The ECB isn't...