Holds Interest Rates Steady as Middle East Conflict Fuels Inflation Risks

The Governing Council of the European Central Bank (ECB) announced on Thursday that it has decided to maintain its key interest rates unchanged. This decision comes amid rising inflation across the euro area, which has been influenced by the conflict in the Middle East. Specifically, the rates for the deposit facility, main refinancing operations, and marginal lending facility were kept steady at 2.0%, 2.15%, and 2.40%, respectively.

This represents the second consecutive period the rates have remained unchanged, following the last adjustment in June 2025. The ECB acknowledged that the conflict in the Middle East has caused a sharp escalation in energy prices, thereby contributing to inflationary pressures and dampening economic sentiment. The bank stated that the medium-term impact of the war on inflation and economic activity will hinge on the persistence and intensity of the energy price shock, as well as any secondary effects.

Prolonged conflict and elevated energy costs are expected to exert a stronger influence on overall inflation and the economy. Despite the current uncertainty, the ECB noted that the Governing Council remains adequately positioned to manage the situation. While the euro area began this period with inflation near the 2% target, the economy has displayed resilience in recent quarters, and long-term inflation expectations remain stable, though short-term expectations have increased notably.

The ECB confirmed it will adopt a data-dependent, meeting-by-meeting approach for monetary policy. Future interest rate decisions will rely on assessments of the inflation outlook, associated risks, and incoming economic data, without pre-committing to a specific rate path. Preliminary data from Eurostat indicated that annual inflation in the euro area is projected to rise to 3.0% in April from 2.6% in March.

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