The European Central Bank is expected to hold interest rates steady again on Thursday as policymakers weigh concerns about higher inflation triggered by the Middle East war against worries about weakening growth.
Energy costs have spiked since the near total closure of the Strait of Hormuz, through which about a fifth of the world's oil and gas usually pass, following the outbreak of the US-Israeli conflict against Iran.
Eurozone inflation is already picking up -- it was 2.6 percent in March, above the ECB's two-percent target -- but the central bank appears reluctant to quickly hike rates, fearing higher borrowing costs could weigh on the region's already lacklustre growth.
But the central bank for the 21-nation euro area is expected to keep its key deposit rate at two percent for now, where it has been since June last year, as it waits to see how the war plays out.
Italian bank UniCredit wrote in a note that it did not "see the urgency" for the Frankfurt-based institution to act, particularly as inflation was around the ECB's target before the conflict.
"The weakening of the outlook for demand, particularly for private consumption, reinforces the case for the ECB to be patient," it said.
Data since the outbreak of the war have pointed to falling consumer and investor confidence, while a key survey in April showed eurozone business activity contracted for the first time in 16 months.
- Looking to June -
Other central banks are also taking a cautious approach.
The Federal Reserve held interest rates steady Wednesday, its third pause in a row, as it also waits for the full impacts of the war to become clear.
The Bank of England, due to meet Thursday ahead of the ECB, is also expected to keep borrowing costs on hold.
But, with inflation higher than in other advanced economies, some members of its rate-setting committee may vote for a hike, analysts say.
While expectations of a swift eurozone rate hike have been tempered somewhat, some are now pencilling one in for the ECB's June meeting.
All eyes will be on President Christine Lagarde's post-rate call press conference for clues as to the path forward.
"Any hints about a June move will be taken on board," said ING bank economist Carsten Brzeski.
- 'Not in a rush' -
Much of the inflation and growth outlook depends on whether Iran and the United States can come to a lasting agreement that secures energy supplies through the Strait of Hormuz, a factor over which the ECB has no control.
Speaking in Berlin earlier this month, Lagarde said the institution was facing "double uncertainty" in that it was unclear both how long the shock would last and what its effect on the broader economy would be.
ECB officials have been keen to stress that the difference between the situation now and that after Russia's invasion of Ukraine in 2022, when the central bank was criticised for moving too slowly to respond to surging inflation.
At that time, an energy shock combined with post-pandemic supply chain woes and tight labour markets to push eurozone inflation to record highs.
But for now, ECB officials are "not in a rush," Bank of Latvia governor Martins Kazaks, a member of the ECB's rate-setting governing council, told The Financial Times last week.
"We still have the large luxury of collecting data and forming our view."
vbw/sr/ane
Keep reading
The top-seeded Detroit Pistons recovered from the brink of elimination with an astounding comeback against Orlando as the Los Angeles Lakers finally saw off Houston at the third time of asking in the NBA playoffs Friday.
Experienced guard Tanyuel Welch joins Mizzou women's basketball from the University of Arizona as the third transfer.
Missouri lost 4-2 Friday and needs to find wins in the SEC Tournament and series finale in order to get to the .500 threshold required for the NCAA Tournament.
(0) comments
Welcome to the discussion.
Log In
Post a comment as Guest
Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.