The European Central Bank left interest rates unchanged at its April meeting, keeping the main refinancing rate at 2.15% and the deposit facility at 2.0%. Policymakers adopted a cautious stance as they evaluated how the war in Iran is affecting inflation and economic growth.
The ECB stated it is well-positioned to manage the current uncertainty, but officials acknowledged that upside risks to inflation and downside risks to growth have intensified. They noted that long‑term inflation expectations remain firmly anchored, even as short‑term expectations have risen markedly.
According to the ECB, the war’s impact on medium‑term inflation and activity will hinge on the duration and severity of the energy price shock, as well as on its indirect and second‑round effects. The longer the conflict endures and energy prices remain elevated, the more pronounced the likely spillovers to broader inflation and the wider economy.
