ECB leaves borrowing costs unchanged, deposit rates remain at 2%
The ECB is keeping interest rates unchanged, as expected. The rate on deposits thus remains at 2%, that on main refinancing operations at 2.15% and that on marginal loans at 2.40
Firm rates, but great attention to the effects of the war in the Middle East. As expected by analysts, the European Central Bank kept the deposit rate at 2%, the main refinancing rate at 2.15% and the marginal lending rate at 2.40%. The decision was taken unanimously. However, the ECB drew a profoundly different outlook for the economy than at the January meeting.
More uncertainty since the war
"The war in the Middle East," explained the statement released after the monetary policy meeting, "has made the outlook significantly more uncertain, generating upside risks to inflation and downside risks to economic growth. The conflict will have a major impact on inflation in the short term through higher energy commodity prices. The medium-term implications will depend on the intensity and duration of the war and how energy prices affect consumer prices and the economy'.
Bce "in a favourable position"
The situation does not require immediate action: "The Governing Council, the note continues, is well placed to address this uncertainty. Inflation has been around the 2% target, longer-term inflation expectations are firmly anchored and the economy has shown good resilience in recent quarters'. However, the ECB remains attentive to what is happening: "The information that the Governing Council will acquire in the coming period will allow it to assess the impact of the conflict on the inflation outlook and the associated risks. The Governing Council is closely monitoring the situation and will define monetary policy appropriately through its data-driven approach".
The new projections
The European Central Bank also published the staff's new macroeconomic projections, prepared on the basis of information available until 11 March. According to the baseline scenario, headline inflation would average 2.6% in 2026 (from 1.9% in December), 2.0% in 2027 (1.8%) and 2.1% in 2028 (2%). Core inflation is expected to average 2.3% in 2026 (from 2.2%) in December, 2.2% in 2027 (1.9%) and 2.1% in 2028 (2%). Economic growth is expected to average 0.9 per cent in 2026 (from 1.2 per cent in December), 1.3 per cent in 2027 (1.4 per cent) and 1.4 per cent in 2028 (unchanged), revised downwards. "Low unemployment, strong private sector balance sheets and public spending on defence and infrastructure should continue to support growth," the statement continued.
The alternative scenarios
The ECB staff also "analysed - the note continues - how the war in the Middle East might affect growth and inflation, based on a number of alternative scenarios formulated for illustrative purposes". According to these scenarios, which do not take into account a possible monetary policy response, "a prolonged disruption to oil and gas supplies would lead to higher inflation and lower growth than in the baseline scenario". The implications for inflation in the medium term 'depend crucially on the size of the indirect and second-round effects of a stronger and more persistent energy shock'.
