By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Olli Rehn said Friday that it was appropriate to leave interest rates unchanged while policymakers monitored the Middle East conflict and awaited new forecasts and analysis in September.

“We decided this time to keep interest rates unchanged,” the Bank of Finland governor said in a blog post on his institution’s website. The ECB’s deposit rate therefore remained at 2.25%.

No information received since the June meeting had altered the Council’s assessment, while the outlook for growth and inflation remained highly uncertain, Rehn said. Decisions would continue to be taken meeting by meeting on the basis of the latest data and an overall assessment.

Rehn said the Middle East conflict was likely to be protracted, given the largely incompatible objectives of Iran’s Revolutionary Guard and the Trump administration. The likelihood that the Strait of Hormuz would reopen fully this year had recently declined, while a possible closure of the Bab el-Mandeb Strait would further worsen the outlook.

“The energy crisis is not yet over,” he said.

Oil prices remained below last spring’s levels, but higher refining margins and transportation costs were raising consumer fuel prices, while natural gas prices had risen significantly again, Rehn said.

“Higher energy prices are reflected in other prices,” Rehn said. Policymakers therefore needed to monitor closely how extensively companies passed higher costs into final prices, he said.

“From the price stability perspective, it is encouraging that there are, at least for the time being, no signs of second-round effects of the energy shock,” he said. Wage pressures appeared moderate, the labor market had continued to cool and longer-term inflation expectations remained close to the ECB’s 2% target, he said.

The latest Eurosystem projections showed the energy shock pushing inflation to “nearly 3.5% by the turn of the year” before it declined toward 2% next year, Rehn said. Continued hostilities could drive energy prices and inflation higher, while a durable ceasefire and increased Gulf oil shipments could produce substantially lower inflation, he said.