On Thursday 19 March, the Governing Council of the European Central Bank (ECB) decided to leave its three key interest rates unchanged. For the sixth time in a row (see EUROPE 13802/21), the deposit facility rate, the main refinancing operations and the marginal lending facility are therefore maintained at 2.00, 2.15 and 2.40% respectively.
“The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth. It will have a material impact on near-term inflation through higher energy prices”, warned ECB President Christine Lagarde at a press conference on Thursday afternoon.
“Its 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”, she continued.
According to the latest ECB staff projections, based on analyses incorporating developments following the start of the US operation in Iran, general price inflation in the euro area could average 2.6% in 2026, before falling back to 2.0% in 2027 and then to 2.1% in 2028.
Lower growth forecast. Despite the euro area economy showing “resilience”, according to Ms Lagarde, the ECB has revised its growth forecast for 2026 downwards, “reflecting the global effects of the war on commodity markets, real incomes and confidence”. The monetary institute is forecasting GDP growth of 0.9% in 2026, compared with the 1.2% estimated in last December’s forecasts.
Given the volatility of the current economic situation, the Governing Council is ready to adjust all its monetary policy instruments to ensure that inflation stabilises at around 2%.
“We will be particularly attentive to developments in all commodities markets, to supply bottlenecks, to selling price expectations of firms, (...) all demand indicators, to wage trackers”, said Ms Lagarde.
To see the Governing Council’s decision: https://aeur.eu/f/l95 ; and the latest macroeconomic forecasts from ECB experts: https://aeur.eu/f/l96 (Original version in French by Bernard Denuit)