The Governing Council of the European Central Bank (ECB) announced Thursday that it has decided to maintain its key interest rates unchanged. The decision was made amid rising inflation across the euro area, which has been influenced by the repercussions of the middle East conflict. The key interest rates—for the deposit facility, main refinancing operations, and marginal lending facility—were set at 2.0%, 2.15%, and 2.40%, respectively, marking no change from previous levels and continuing the status quo for nearly a year.
The ECB noted that the conflict in the middle East has caused a sharp increase in energy prices, thereby increasing inflation and dampening economic sentiment. The central bank stated that the medium-term impact of the war on inflation and economic activity will depend on the persistence and intensity of the energy price shock, as well as its subsequent effects. Despite the uncertainty, the ECB indicated that the Governing Council remains positioned to manage the current environment.
While the euro area entered the period of high energy prices with inflation near the 2% target, the economy has demonstrated resilience recently. Although long-term inflation expectations remain stable, short-term expectations have risen considerably. The ECB stressed that its future monetary policy stance will be determined by a data-dependent, meeting-by-meeting approach.
Future decisions regarding interest rates will be based on assessing the inflation outlook and associated risks, considering incoming economic and financial data, and monitoring underlying inflation trends. The Governing Council declined to pre-commit to a specific path for the interest rates. This decision aligned with market forecasts, although analysts anticipate potential adjustments at the June meeting due to ongoing inflation pressures stemming from the middle East situation.
Furthermore, preliminary Eurostat estimates project annual inflation in the euro area to rise to 3.0% in April from 2.6% in March.
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