Nicosia, Cyprus. The European Central Bank left its key interest rates unchanged earlier this week, as Central Bank of Cyprus governor Christodoulos Patsalides said the broader effects of the recent energy shock remain contained for now.
Patsalides said inflation risks remain tilted upwards while risks to economic growth remain on the downside, amid continued conflict in the Middle East.
ECB decision
Patsalides, a member of the ECB Governing Council, said the decision to maintain key interest rates reflected continuing uncertainty over the economic outlook and the potential impact of higher energy prices.
“We kept key interest rates unchanged,” he said.
Inflation and growth risks
The CBC governor said the economic outlook continued to be shaped by heightened geopolitical uncertainty.
“So far, broader effects from the energy shock remain contained,” Patsalides said. “Risks to inflation continue to be tilted to the upside, whereas risks to growth remain on the downside.”
He said elevated energy prices were increasing production costs and warned that a prolonged Middle East conflict could cause these pressures to broaden and become more persistent.
Energy price outlook
The ECB said energy prices remained highly volatile but were still broadly consistent with the baseline scenario in the June Eurosystem staff projections.
It said energy prices remained well above levels recorded before the outbreak of the Middle East conflict, while uncertainty continued to weigh on the euro area’s economic outlook.
The central bank also said the full inflationary effect of the energy shock had not yet been fully realised, and that policymakers remained alert to the possibility of broader price pressures over time.
