Policymakers at the European Central Bank noted that the war in the Middle East had significantly increased uncertainty, creating upside risks to inflation and downside risks to growth. Even so, minutes from the March meeting indicated that the ECB considered itself well positioned to manage this environment. While conditions could change rapidly and uncertainty surrounding both the conflict and its economic fallout was expected to remain very high, officials also saw the possibility that these uncertainties might be resolved in the coming weeks or months.
Despite a substantial upward revision to the near-term inflation outlook, inflation was still projected to converge towards the 2% target over the medium term. In this context, keeping interest rates unchanged in March, while preserving flexibility for future decisions, was viewed as a prudent course of action. The meeting-by-meeting strategy, with no prior commitment to a specific path for interest rates, was considered particularly appropriate at this stage.
