President of the European Central Bank (ECB) Christine Lagarde warned on Thursday that the inflation in the euro zone will likely remain above the target level throughout the first half of 2027 due to economic impacts from the Middle East conflict.
The impacts include the surge in energy prices and its spillover effects on goods and services prices, she said.
The ECB on Thursday announced that it will keep the three key interest rates unchanged.
The decision to put interest rates on hold has been made at a time when oil prices are shooting up due to the escalation of the U.S. war against Iran.
The interest rate on the deposit facility, the ECB's main policy rate, remains at 2.25 percent, while the rates on the main refinancing operations and the marginal lending facility remain unchanged at 2.4 percent and 2.65 percent, respectively.
Speaking at a press conference after a meeting of the ECB, Lagarde noted that while the ongoing Middle East conflict continues to add pressure on the economy, economic activities in the euro zone have picked up in the second quarter.
The economic growth of the bloc will remain modest in the near term and the fundamentals underpinning the medium-term growth stay solid, she said.
In its press release, the ECB said that despite drastic volatility, changes in the energy prices are overall in line with the basic projections laid out in June.
The ECB said that currently, energy prices still stand markedly above levels prior to the outbreak of the Middle East conflict and the inflationary impacts stemming from the energy prices have yet to materialize in full, with uncertainty remaining high.
The ECB said it remains committed to keeping the medium-term inflation in the euro zone at the target rate of 2 percent, and will assess monetary policies by analyzing data at meetings without promising any interest rate path in advance.
The ECB raised the three key interest rates by 25 basis points in June, its first rate hike since September 2023.
ECB warns of prolonged high inflation in eurozone amid Middle East conflict
