ECB maintains interest rates amid uncertain outlook due to Middle East conflict

Christine Lagarde, President of the ECB, and Luis de Guindos, Vice-President, announced that the Governing Council decided to keep the three key ECB interest rates unchanged. The decision reflects a commitment to stabilize inflation at the two percent target in the medium term.

The outlook is more uncertain due to the war in the Middle East, which has increased upside risks for inflation and downside risks for economic growth. The conflict is expected to impact near-term inflation through higher energy prices, with medium-term effects depending on the conflict’s duration and intensity.

Inflation has been around the two percent target, with long-term expectations well anchored. The ECB’s latest projections, incorporating data up to 11 March, estimate inflation at 2.6% in 2026, 2.0% in 2027, and 2.1% in 2028. These projections have been revised upward, mainly due to higher energy prices.

Economic growth is projected at 0.9% in 2026, 1.3% in 2027, and 1.4% in 2028, with downward revisions especially for 2026 due to the war’s impact on commodity markets, incomes, and confidence. The ECB emphasizes the importance of supporting growth through fiscal measures, reducing dependence on fossil fuels, and advancing digital and green transitions.

Recent inflation data shows a rise to 1.9% in February, driven by increases in services and core inflation, despite lower energy prices. Underlying inflation indicators remain consistent with the two percent target, supported by wage growth and corporate profits.

Risks to growth are tilted to the downside, mainly due to geopolitical tensions and energy price shocks, while inflation risks are tilted to the upside if energy prices remain high or if wage and inflation expectations increase. Financial conditions have tightened, with higher interest rates and lower stock markets, reflecting market reactions to geopolitical tensions.

The Governing Council reaffirmed its readiness to adjust all instruments within its mandate to ensure inflation stabilizes sustainably at the target and to maintain effective monetary policy transmission. The next steps will depend on incoming economic and financial data.

For more details, see the full statement on the ECB website: ECB monetary policy statement.