ECB holds rates, sees intensified inflation and growth risks

The Governing Council decided to keep the three key ECB interest rates unchanged, noting that incoming information was broadly consistent with its previous assessment of the inflation outlook.

However, President Christine Lagarde and Vice-President Luis de Guindos highlighted intensified upside risks to inflation and downside risks to growth.

The war in the Middle East has led to a sharp increase in energy prices, pushing up inflation and weighing on economic sentiment.

The ECB remains committed to ensuring inflation stabilizes at its two percent target in the medium term, emphasizing a data-dependent and meeting-by-meeting approach to monetary policy.

The euro area has shown resilience, and longer-term inflation expectations remain well anchored, despite a significant rise in shorter-term expectations.

Euro area headline inflation rose to 3.0 percent in April, up from 2.6 percent in March, primarily driven by a 10.9 percent surge in energy prices.

Core inflation, excluding energy and food, decreased slightly to 2.2 percent, reflecting a fall in services inflation to 3.0 percent.

Meanwhile, the euro area economy grew by 0.1 percent in the first quarter of 2026.

However, the economic outlook is highly uncertain, with surveys pointing to slowing growth and reduced consumer and business confidence.

High energy costs are expected to continue weighing on real incomes, despite unemployment remaining near historical lows at 6.2 percent in March.