Europe's central banks are no longer in a 'good place' as Iran war upends forecasts

In this article Follow your favorite stocks CREATE FREE ACCOUNT A projection of a Euro currency sign is pictured on the facade of the European Central Bank headquarters in Frankfurt am Main, western Germany, on Dec. 30, 2025. Kirill Kudryavtsev | Afp | Getty Images Before the war on Iran began in late February, Europe's central banks enjoyed a more benign inflation outlook as interest rates looked set to remain stable or keep falling across the region. But the conflict has upset the economic equilibrium, threatening Europe's energy supplies, growth and the outlook for consumer prices. Expectations for interest rates across the continent have been upended. On Thursday, the European Central Bank, Bank of England, Sweden's 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's war on Iran, which began in late February, is likely to impact their decision-making. Expectations upended 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's 2% target. The latest flash data from Eurostat showed inflation in the euro zone rose to 1.9% in February, up from 1.7% in January. ECB President Christine Lagarde had, at the central bank's last meeting in February, repeated a mantra that the euro zone's economic outlook was "in a good place" but warned against complacency. Her caution now appears to be well-founded. Traders will pay close attention to ECB guidance on Thursday for clues as to how the bank could respond, as Iran's closure of the Strait of Hormuz reduces oil and gas supplies to the region, pushing up energy costs and inflationary pressures. "On Thursday, we expect the ECB to keep the deposit rate at 2% for a sixth consecutive meeting," Konstantin Veit, portfolio manager at PIMCO, noted this week, adding: "We expect the ECB will stress he...