The European Central Bank has stood firm on interest rates at its April policy meeting, opting for a pause while warning that conflict in the Middle East is driving a sharp rise in energy prices and clouding the inflation outlook.
Rates unchanged since July
The European Central Bank (ECB) kept its key interest rates unchanged following its April meeting, which concluded on Thursday.
According to a statement from the governing council, the deposit facility rate was held at 2%, the main refinancing operations (MRO) rate at 2.15%, and the marginal lending facility rate at 2.4%.
The decision was in line with the expectations of both analysts and market participants.
Rates have remained at these levels since July of last year.
Middle East war fuels price pressures
“The incoming information broadly confirms our previous assessment of the inflation outlook, although risks of accelerating consumer price growth and a slowdown in GDP have intensified,” the ECB said in a statement.
“The war in the Middle East has triggered a sharp rise in energy prices, which has pushed up inflation and worsened economic sentiment. The medium-term implications of the conflict will depend on the intensity and duration of the energy shock, as well as the scale of direct and secondary effects. The longer the war continues and energy prices stay high, the greater the likely impact on inflation and the economy.”
Data-driven approach ahead
The governing council noted that it is in a good position to navigate the current period of uncertainty.
“We have entered this period with inflation close to our 2% target, while the eurozone economy has shown resilience in recent quarters,” the statement added. “Long-term inflation expectations remain stable, although they have risen significantly in the near term.”
The ECB’s governing council said it would continue to monitor the situation closely and would make monetary policy decisions on a meeting-by-meeting basis, depending on incoming data.
The council is committed to ensuring that inflation stabilises at the 2% target over the medium term, the statement said.
The portfolio of bonds acquired under the ECB’s two asset-purchase programmes (PEPP and APP) is declining at a moderate and predictable pace, as the central bank no longer reinvests the proceeds, according to the press release.
On Thursday, the euro was trading at 1.1693 against US Dollar. The pan-European Stoxx Europe 600 index was up 1% on the day.
