War intensifies inflation, growth risks; ECB holds rates

The Governing Council kept the interest rates on the deposit facility, main refinancing operations, and marginal lending facility unchanged at 2.00 percent, 2.15 percent, and 2.40 percent respectively.

This decision comes as inflation in the euro area rose to 3.0 percent in April 2026, up from 2.6 percent in March and 1.9 percent in February.

The surge was primarily driven by energy prices, which jumped 10.9 percent year-on-year.

While inflation excluding energy and food decreased slightly to 2.2 percent, the overall outlook remains challenged by the Middle East conflict.

Real GDP grew by a modest 0.1 percent in the first quarter of 2026, with domestic demand as the main driver.

The labour market remains resilient, with unemployment at 6.2 percent in March.

The ECB reiterated its commitment to ensuring inflation stabilises at its 2 percent target in the medium term, adopting a data-dependent, meeting-by-meeting approach.

The Middle East conflict has intensified both upside risks to inflation and downside risks to growth.

High energy costs are expected to continue weighing on real incomes, dampening consumption and investment.

Survey results indicate slowing growth and reduced confidence, with supply chains under pressure.

Financial conditions have tightened globally, with market-based debt costs rising to 3.9 percent in March 2026.

Credit standards for corporate loans tightened in the first quarter due to increased economic risk concerns.

The Governing Council emphasized temporary, targeted fiscal responses to the energy price shock, alongside reforms to enhance growth potential and accelerate the energy transition.

The digital euro is highlighted to boost Europe's strategic autonomy and innovation.