By Paul Hannon


The European Central Bank may again raise its key interest rate, despite the "welcome" news of a potential peace deal between the U.S. and Iran, Chief Economist Philip Lane said Tuesday.

The ECB last week raised its key rate to 2.25% from 2%, becoming the first major institution to do so since the start of the Middle East conflict in late February.

That decision was taken before Iran and the U.S. said on Sunday they have agreed on an interim peace deal.

Lane said that while energy prices have fallen since that news, they haven't returned to their prewar levels, and he didn't rule out a further rise in the key rate.

"Whether we do more or stay at the new level will be dependent on incoming data," he said.

The ECB has outlined a number of different paths for the eurozone economy that mainly depend on how high energy prices rise and for how long they stay above prewar levels.

Lane said future prices as implied by trading in energy markets are now closer to the ECB's milder scenarios than to the more severe outcomes it has mapped.

Other central banks have taken a similarly cautious approach to the prospect of a lasting peace deal, with the Bank of Japan Tuesday warning that it may raise its key rate again after lifting borrowing costs to their highest level in 31 years.

Many details of the potential peace agreement are yet to be settled, and it is unclear exactly when the Strait of Hormuz will reopen fully and energy supplies from the Persian Gulf will return to prewar levels.

"It's early days, it's welcome news," Lane said.

However, a peace deal is unlikely to significantly cool eurozone inflation during the remainder of the year, leaving it above the ECB's 2% target. The inflation rate rose to 3.2% in May from 3% in April, having been below target in the first two months of the year.

"What we have now already in the pipeline of inflation is a year of inflation above 3%," Lane said.

While a further increase in borrowing costs is possible, Lane said the ECB isn't committed to any rate path and is deliberately "drawing a veil over where we might go in the future."

"That's really a kind of guidance to everyone to recognize we live in a world that's hard to predict," he said.


Write to Paul Hannon at paul.hannon@wsj.com


(END) Dow Jones Newswires

06-16-26 1033ET