ECB holds key rates amid Middle East conflict uncertainty
The European Central Bank's Governing Council today decided to keep its three key interest rates unchanged. The decision reflects increased uncertainty from the war in the Middle East, posing upside risks to inflation and downside risks to economic growth.
Inflation projections revised upwards
The Governing Council maintained the deposit facility rate at 2.00 percent, the main refinancing operations rate at 2.15 percent, and the marginal lending facility rate at 2.40 percent.
New ECB staff projections, incorporating data up to March 11, show headline inflation averaging 2.6 percent in 2026, 2.0 percent in 2027, and 2.1 percent in 2028.
These figures represent an upward revision from December projections, primarily due to higher energy prices stemming from the Middle East conflict.
Inflation excluding energy and food is projected at 2.3 percent in 2026, 2.2 percent in 2027, and 2.1 percent in 2028, also revised higher.
Economic growth projections were revised downwards, averaging 0.9 percent in 2026, 1.3 percent in 2027, and 1.4 percent in 2028, reflecting global impacts on commodity markets and confidence.
Navigating uncertainty with data-dependent policy
The Governing Council acknowledged significant uncertainty from the Middle East conflict, which poses upside risks to inflation and downside risks to economic growth.
Despite this, the euro area economy has shown resilience, and longer-term inflation expectations remain well anchored.
The Council reiterated its data-dependent, meeting-by-meeting approach to monetary policy, emphasizing that interest rate decisions will be based on the inflation outlook and incoming economic and financial data.
It explicitly stated that it is not pre-committing to a particular rate path.
The Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios continue to decline at a measured pace, with no reinvestment of maturing securities.
Source: Monetary policy decisions
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