\n<\/p>\n
A projection of a Euro currency sign is pictured on the facade of the European Central Bank (ECB) headquarters in Frankfurt am Main, western Germany, on Dec. 30, 2025.<\/p>\n
Kirill Kudryavtsev | Afp | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Before the war on Iran began in late February, Europe\u2019s central banks enjoyed a more benign inflation outlook as interest rates looked set to remain stable or keep falling across the region. <\/p>\n
But the conflict has upset the economic equilibrium, threatening Europe\u2019s energy supplies, growth and the outlook for consumer prices. Expectations for interest rates across the continent have been upended. <\/p>\n
On Thursday, the European Central Bank, Bank of England, Sweden\u2019s Riksbank and Swiss National Bank are all set to deliver their latest monetary decisions. Each central bank is also likely to deliver it first comments on how the U.S. and Israel\u2019s war on Iran, which began in late February, is likely to impact their decision-making.<\/p>\n<\/div>\n
Even before the war began, the ECB was not expected to change its stance on its benchmark interest rate, with euro zone inflation data remaining near the central bank\u2019s 2% target. The latest flash data from Eurostat showed inflation in the euro zone\u00a0rose to 1.9%<\/a>\u00a0in February, up from 1.7% in January.<\/p>\n ECB President Christine Lagarde had, at the central bank\u2019s last meeting in February, repeated a mantra that the euro zone\u2019s economic outlook was \u201cin a good place\u201d but warned against complacency. Her caution now appears to be well-founded. <\/p>\n Traders will pay close attention to ECB guidance on Thursday for clues as to how the bank could respond, as Iran\u2019s closure of the Strait of Hormuz reduces oil and gas supplies to the region, pushing up energy costs and inflationary pressures.<\/p>\n \u201cOn Thursday, we expect the ECB to keep the deposit rate at 2% for a sixth consecutive meeting,\u201d Konstantin Veit, portfolio manager at PIMCO, noted this week, adding: \u201cWe expect the ECB will stress heightened geopolitical uncertainty and signal a more hawkish tone rather than move policy immediately.\u201d<\/p>\n \u201cIn our view, the new staff projections will likely show a short-term inflation overshoot driven by higher energy prices, before inflation returns to 2% next year,\u201d he said, expecting headline inflation to peak at around 3% this year, with energy contributing roughly 1 percentage point.<\/p>\n<\/div>\n The Bank of England had been expected to cut its key interest rate, known as \u2018Bank Rate,\u2019 at its March meeting, easing pressure households and businesses grappling with high borrowing costs. <\/p>\n<\/div>\n Andrew Bailey, governor of the Bank of England (BOE), during the Monetary Policy Report news conference at the bank\u2019s headquarters in the City of London, UK, on Thursday, Aug. 1, 2024.\u00a0<\/p>\n Bloomberg | Bloomberg | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n But economists say the fallout of the war has left the likelihood of cut<\/a> increasingly remote. The central bank\u2019s monetary policy committee (MPC) is now likely to err on the side of caution and keep Bank Rate at 3.75% as it waits to see how long the conflict might last.<\/p>\n \u201cThe Bank of England is unlikely to surprise this week,\u201d John Wyn Evans, head of Market Analysis at Rathbones, said in emailed analysis.<\/p>\n \u201cRate cuts once seen as plausible for spring have been fully priced out, and a rise later in the year can\u2019t be dismissed,\u201d he noted. With the duration of the conflict unclear, \u201cthe most probable outcome is a holding pattern: not tightening, but certainly not loosening until the fog lifts,\u201d Wyn Evans said.<\/p>\n<\/div>\n The Swiss National Bank is also expected to keep its main policy rate on hold at 0.00% on Thursday. Switzerland\u2019s economy is less exposed to macroeconomic shocks as a result of turmoil in the Middle East than others, according to Dani Stoilova, UK and Europe Economist at BNP Paribas Markets 360.<\/p>\n \u201cSwitzerland\u2019s economy is better positioned to navigate a potential energy price shock than European peers, our analysis suggests, limiting the impact on growth and inflation on a relative basis,\u201d she said in emailed comments.<\/p>\n<\/div>\n The Swiss National Bank (SNB) in Bern, Switzerland, on Thursday, Dec. 12, 2024.<\/p>\n Stefan Wermuth | Bloomberg | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n While elevated volatility and aggressive fluctuations in the Swiss franc (CHF) could increase the scope for foreign exchange intervention, BNP Paribas do \u201cnot expect market views on the potential for SNB intervention to meaningfully dampen safe-haven inflows amid geopolitical uncertainty\u201d. <\/p>\n \u201cWe see the CHF remaining supported\u201d, the bank said. <\/p>\n<\/div>\n Like its fellow European counterparts, Sweden\u2019s Riksbank is also widely expected to keep its main policy rate on hold at 1.75% at its meeting on Thursday.<\/p>\n \u201cIncoming growth and inflation data have been weak, with inflation still set to drop sharply to 1% this year,\u201d JPMorgan economists Allan Monks and Fabio Tomasoni noted in emailed comments last week.<\/p>\n \u201cBut higher energy prices should reduce concerns about a potential fall in inflation expectations,\u201d they added. JPMorgan expected the rate path to remain flat for the next three quarters. <\/p>\n<\/div>\nBank of England<\/h2>\n
Swiss National Bank<\/h2>\n
Sweden\u2019s Riksbank<\/h2>\n
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