FRANKFURT, May 1 (Xinhua) -- The Governing Council of the European Central Bank (ECB) on Thursday unanimously decided to put interest rates on hold.
The decision came at a time when the war in the Middle East is pushing prices in the euro area higher and casting a shadow on economic growth.
Reiterating its commitment to bringing inflation to around 2 percent in the medium term, the ECB stressed that it will be highly attentive to incoming data over the next six weeks to assess the impact of the war.
HEIGHTENED RISKS
The three key interest rates, the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility, are left unchanged at 2 percent, 2.15 percent and 2.4 percent, respectively.
Governing Council members made the decision as "the incoming information has been broadly consistent with the Governing Council's previous assessment of the inflation outlook," said an ECB press release.
ECB staff projections in March showed that inflation is expected to average 2.6 percent in 2026 before declining to 2 percent in 2027 and 2.1 percent in 2028.
"The hard data was basically in line with our projections in March," ECB President Christine Lagarde told a press conference after the governing council meeting on Thursday.
Meanwhile, the ECB acknowledged that "the upside risks to inflation and the downside risks to growth have intensified" due to the war in the Middle East.
"The Governing Council remains well positioned to navigate the current uncertainty," it said.
MOVING AWAY FROM BASELINE
In contrast to the "hard data," recent ECB surveys have clearly shown that financial institutions and consumers are pricing in a resurgence of inflation.
Financial institutions are tightening credit standards and consumers surveyed by the ECB in March indicated that they are expecting inflation to be as high as 4 percent in the next 12 months.
Lagarde admitted that the impact of energy prices will be "critically important," and the implications of the war for medium-term inflation and economic activity will depend on the intensity and duration of the energy price shock as well as the scale of its indirect and second-round effects.
Lagarde disclosed that the decision followed lengthy and in-depth discussions among governing council members, who concluded that "we are certainly moving away from the baseline."
The ECB has yet to determine how far the current situation has deviated from its baseline projections.
RATE HIKE DISCUSSED
Inflation in the euro area soared to 3 percent in April from 2.6 percent in March and 1.9 percent in February. It hovered around 2 percent for most of 2025.
The resurgence in inflation was largely due to energy price hikes as a result of the war in the Middle East, which, according to the ECB, "is weighing on economic activity."
The recent ECB consumer survey showed that consumers and businesses expect a slowdown in growth.
Real GDP in the euro area grew 0.1 percent in the first quarter of 2026.
Lagarde dismissed concerns about stagflation, which means continuously stubborn high inflation coupled with economic stagnation, at the press conference.
The euro area economy is expected to grow 0.9 percent in 2026, according to the ECB's March staff macroeconomic projections. Lagarde stressed that it represents lower growth rather than stagnation.
In addition, the ECB stands ready to bring inflation to its 2 percent target in the medium term. Lagarde said that the central bank will mainly use interest rates as a tool for this purpose.
Governing Council members did discuss "at length" and "in-depth" various options, including a rate hike, according to Lagarde.
Describing the disclosure of rate hike discussions as "the most remarkable comments," Carsten Brzeski, global head of macro for ING Research, said in a note that it can be interpreted as "another hawkish shift," suggesting that "a June hike has come closer." ■