ECB holds rates steady, cites intensified risks

The Governing Council of the European Central Bank decided to keep its three key interest rates unchanged.

The deposit facility rate remains at 2.00 percent, the main refinancing operations rate at 2.15 percent, and the marginal lending facility rate at 2.40 percent.

This decision comes despite incoming information being broadly consistent with the Council's previous assessment of the inflation outlook.

However, the Council noted an intensification of upside risks to inflation and downside risks to growth.

The Governing Council reaffirmed its commitment to setting monetary policy to ensure that inflation stabilises at its 2 percent target in the medium term, underscoring its vigilance in the current economic environment.

The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios continue to decline at a measured and predictable pace, as the Eurosystem no longer reinvests principal payments from maturing securities.

The ongoing war in the Middle East has significantly impacted the economic landscape, leading to a sharp increase in energy prices.

This surge is pushing up inflation and weighing on overall economic sentiment.

The Governing Council highlighted that the implications for medium-term inflation and economic activity will depend heavily on the intensity and duration of this energy price shock and its second-round effects.

Despite these challenges, the euro area entered this period of surging energy prices with inflation already around the 2 percent target, and the economy has demonstrated resilience in recent quarters.

Longer-term inflation expectations remain well anchored.

The Council stressed its data-dependent and meeting-by-meeting approach to monetary policy, without pre-committing to any particular rate path.

The Transmission Protection Instrument (TPI) remains available to counter unwarranted market dynamics.