The European Central Bank will maintain interest rates at 2% on Thursday, defying inflationary pressures from the Iran war. Policymakers prioritize medium-term consequences over immediate energy price shocks, with President Christine Lagarde emphasizing "double uncertainty" around the shock's duration and pass-through effects. This cautious approach mirrors actions by other major central banks.

Markets anticipate a quarter-point rate increase in June and two additional hikes before year-end, despite current economic uncertainty. The ECB confronts a classic stagflation dilemma described by economist Clemens Fuest as a "textbook case" requiring careful balance between inflation control and recession risks. Officials stress they're better positioned than during the 2022 Ukraine conflict.

Thursday's meeting marks the final gathering for three ECB Governing Council members, including Vice President Luis de Guindos, as leadership changes begin. While Lagarde dismissed speculation about her early departure, the central bank maintains its data-dependent approach with no tightening bias, underscoring the delicate navigation required amid persistent economic crosscurrents.