- Main refi rate unchanged at 2.15%
- Deposit rate unchanged at 2.00%
- War poses upside risks to inflation, downside risks to growth
- Determined to ensure inflation reaches target
- Implications for medium-term inflation depend crucially on the magnitude of indirect and second-round effects
The market is now pricing in 64 bps in rate hikes this year for the European Central Bank as energy prices in Europe surge.
The ECB held all three key interest rates steady today — the deposit facility at 2.00%, main refinancing at 2.15%, and marginal lending at 2.40%. The big shift from the prior statement is the prominent role of the Middle East war, which the Governing Council flags as a major source of uncertainty, pushing inflation risks higher and growth risks lower.
The new staff projections tell the story clearly. Headline inflation for 2026 has been revised up to 2.6% (from the December forecast), driven largely by higher energy prices tied to the conflict. Core inflation projections also moved higher — 2.3% for 2026, 2.2% for 2027, and 2.1% for 2028 — as energy costs feed through to broader prices. On the growth side, the 2026 forecast was cut to just 0.9%, reflecting commodity market disruption, weaker real incomes, and lower confidence. The Council does note some buffers: low unemployment, healthy private sector balance sheets, and rising defense and infrastructure spending.
A notable addition is the inclusion of alternative scenario analysis examining how a prolonged oil and gas supply disruption could push inflation even higher and growth even lower than the baseline. The Council emphasizes that medium-term inflation risks hinge on how severe indirect and second-round energy effects turn out to be.
The forward guidance language remains firmly data-dependent and meeting-by-meeting, with no pre-commitment to any rate path — consistent with a Council that’s choosing to wait and watch rather than act.
here are the changes in the forecasts, the new staff projections exceptionally incorporate information up to 11 March, a later cut-off date than usual:
GDP growth for this yer was revised to +0.9% from +1.2% with 2027 and 2028 forecasts virtually unchanged.
More headlines:
- War in the Middle East has made outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth
- Is well positioned to navigate this uncertainty
- Incoming information in period ahead will help assess how war will affect inflation outlook and risks surrounding it
- Is closely monitoring situation, and its data-dependent approach will help it set monetary policy as appropriate
- Inflation has been revised up compared with December projections, especially for 2026
- This is also higher than path in December projections, mainly owing to higher energy prices feeding into inflation excluding energy and food
- Staff expect economic growth to average 0.9% in 2026, 1.3% in 2027 and 1.4% in 2028
- Scenario analysis suggests that a prolonged disruption in supply of oil and gas would result in inflation being above, and growth being below, baseline projections
- Will follow a data-dependent and meeting-by-meeting approach to determining appropriate monetary policy stance
- Interest rate decisions will be based on its assessment of inflation outlook and risks surrounding it, in light of incoming economic and financial data, as well as dynamics of underlying inflation and strength of monetary policy transmission
- Is not pre-committing to a particular rate path
- Medium-term implications will depend both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy
- The economy has shown resilience over recent quarters
- Governing council will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance
Lagarde will host a press conference at 9:45 am ET.
This article was written by Adam Button at investinglive.com.
