Published by Global Banking & Finance Review®
Posted on March 5, 2026
2 min readLast updated: April 2, 2026
Add as preferred source on GoogleMorgan Stanley now expects the ECB to hold rates through all of 2026 due to inflation risks from the Middle East conflict, delaying two previously forecast rate cuts from 2026 to 2027. Rising energy prices tied to the Iran war pose renewed inflation threats.
March 5 (Reuters) - Morgan Stanley on Thursday became the latest Wall Street brokerage to forecast that the European Central Bank will keep interest rates steady through 2026, citing potential inflation risks due to the conflict in the Middle East.
The Wall Street brokerage had previously anticipated two ECB rate cuts in June and September, but now expects the central bank to deliver those reductions in 2027 instead. Last month, BofA Global Research removed its forecast for rate cuts in 2026.
Global financial markets have been reeling as the U.S.- Iran war has stoked fears of an oil supply shock, elevated inflation and an uncertain economic outlook.
"Given the recent increase in energy prices, euro area inflation will likely be back above the ECB's target for the remainder of this year," Morgan Stanley analysts said in a note.
Oil prices surged more than 3% on Thursday, extending their rally, with Brent crude last trading at $83.81 a barrel.
"For 2027, inflation could fall again below target, but this is predicated on rapid energy market normalisation," the analysts added.
Although the brokerage expects inflation to fall in 2027, a persistent rise in energy prices could bring the discussion around rate hikes back to the table.
(Reporting by Kanchana Chakravarty in Bengaluru; Editing by Sonia Cheema)
Morgan Stanley cites heightened inflation risks from the Middle East conflict and rising energy prices as reasons for the ECB to keep rates steady through 2026.
The conflict in the Middle East has pushed up oil prices, causing inflation risks that have influenced the ECB's monetary policy forecast.
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