The European Central Bank (ECB) kept its key interest rates unchanged on Thursday, but said it was closely monitoring the economic fallout from the war against Iran. Surging energy costs have pushed inflation above the ECB's target.

The ECB had raised rates last month and hinted at further increases, but a string of relatively calm data in subsequent weeks made a follow-up step seem less urgent. However, Thursday's decision came as oil futures briefly topped $100 per barrel again and as exchanges of fire between the US and Iran have become a daily occurrence.

The Frankfurt-based central bank for the eurozone said the outlook for energy prices was in line with June projections, though well above pre-conflict levels. "Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out," the ECB said in a statement.

The ECB reaffirmed its commitment to keeping inflation stable at around 2% in the medium term. It said it would follow a "data-dependent and meeting-by-meeting approach," indicating future rate hikes are possible if deemed necessary.

ECB President Christine Lagarde said at a press conference that "some governors" had considered raising rates during this month's meeting. "The energy shock could intensify further and its effects on other prices and wages could be stronger than currently expected," Lagarde said. She also noted positive data on employment, industrial activity, and plans to boost European defense spending.

Source: www.dw.com