AFP, Frankfurt

The European Central Bank held interest rates steady on Thursday but signalled a possible increase ahead as it warned of growing risks to the growth and inflation outlook due to the war in the Middle East.

Energy costs have surged since the near-total closure of the Strait of Hormuz, through which about a fifth of the world’s oil and gas usually passes, following the outbreak of the US-Israeli war against Iran.

“The increase in energy prices will keep inflation well above two percent in the near term,” ECB president Christine Lagarde said at a press conference. “As the period of high energy prices extends, the likely impact on broader inflation through indirect and second round effects intensifies,” she added.

The ECB’s decision to hold its key deposit rate at two percent, where it has been since June last year, was in line with analysts’ expectations, as the bank waits to see how the war plays out and for more data to gauge its impact on the eurozone economy.

Lagarde told journalists the ECB had made a unanimous decision to keep rates where they were on the basis of “insufficient information”, adding that some indicators nevertheless showed the economy moving away from the bank’s more benign baseline scenario.

“We are certainly moving away from the baseline,” Lagarde said. “I think directionally I know where we’re heading.”

Eurozone economic growth slowed to 0.1 percent in the first three months of the year, official data showed Thursday, and eurozone inflation jumped to three percent in April, well above the ECB’s two-percent target.