The European Central Bank held interest rates steady on Thursday, but left the door open to raising borrowing costs again in the coming months to contain inflation driven by the war in the Middle East.

The central bank left rates at 2.25%, as widely expected by markets, after lifting them for the first time in almost three years last month. Global oil prices have jumped back above $100 a barrel as tensions escalate in the Strait of Hormuz, reigniting the risk of war-induced inflation pressures.

The key point

The ECB's pause gives policymakers time to assess how the collapse of the June U.S.-Iran ceasefire will affect inflation.

Renewed fighting has sent oil and natural-gas prices back up, threatening to drive inflation further away from the ECB's 2% target. Consumer price growth in the eurozone eased to 2.8% in June, from 3.2% in May, after the ceasefire initially drove down energy prices.

ECB President Christine Lagarde said some members of the ECB's governing council discussed raising interest rates again at this week's meeting.

"There were some governors who asked themselves whether we should not consider a hike," she said. "We all unanimously decided that we were positioned adequately to wait."

European bond yields have surged alongside energy prices, sending government borrowing costs to their highest levels in more than a decade. Germany's 10-year government bond yield climbed toward 3.2% this week, the highest since 2011. France's benchmark borrowing costs topped 4%, a level last seen in 2009.

The context

The ECB has moved faster to confront energy-price-induced inflation than the Federal Reserve or Bank of England, which have yet to raise interest rates since the war started in late February. Investors mostly expect the Fed and BOE to hold rates steady when they meet next week, though traders are betting both central banks will join the ECB in raising rates in the coming months.

The ECB has more room to lift borrowing costs because its benchmark policy rate sits more than a percentage point lower than its peers, and is still within a range that many economists view as neutral for the economy -- neither stimulating nor restricting growth.

The Fed's target policy rate range is 3.5% to 3.75%, while the BOE's bank rate is 3.75%.

What comes next

Investors are pricing in nearly two more quarter-point rate increases from the ECB this year, with the next expected in September or October, according to derivatives markets.

Lagarde said Thursday that higher energy costs have already fed through to prices for other things like transportation. Policymakers are focused now on whether elevated inflation is leading to so-called second-round effects, such as higher wages, that are harder to contain.

"We are concerned, which leads us to being very attentive," she said, before adding, "We are not at that stage where we are seeing those...signs of second-round effects."

Lagarde also said she planned to stay in her job through the end of the year amid speculation that she could resign before her term expires in October 2027 to play a role in next year's French election to replace President Emmanuel Macron.

"You are not going to see the back of me before 2027," she said. But Lagarde didn't rule out leaving early, saying she hates "to be boxed in."

She repeated a previous statement that she wouldn't depart while Europe's economy is facing such high levels of uncertainty.

"When there are clouds on the horizon, the captain stays on the ship, and this captain is staying on this ship as long as there are clouds on the horizon," she said.

Write to Chelsey Dulaney at chelsey.dulaney@wsj.com

(END) Dow Jones Newswires

July 23, 2026 11:45 ET (15:45 GMT)

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