ECB Holds Still as Inflation Refuses to Settle

The European Central Bank kept its policy settings unchanged in March, but the message carried more weight than the decision itself.

The European Central Bank kept its policy settings unchanged in March, but the message carried more weight than the decision itself. The main rate stands at 2.15%, the deposit rate at 2.00%, and the marginal lending facility at 2.40%. Stability in rates, however, contrasts with a shifting economic backdrop.

Energy Drives the Narrative Again

The conflict in the Middle East is now feeding directly into the ECB’s outlook. Rising energy costs are adding upward pressure on prices, while at the same time weakening growth dynamics across the region. This combination is challenging to manage, as inflation risks and growth concerns influence each other in opposing ways.

Inflation Takes Longer to Cool

The ECB now sees inflation reaching 2.6% in 2026, before easing toward 2.0% in 2027 and stabilizing near 2.1% in 2028. Core inflation was also revised higher, reinforcing the idea that price pressures are proving more persistent than previously expected. Economic expansion is predicted to remain modest. The Eurozone is projected to grow by 0.9% in 2026, followed by 1.3% in 2027 and 1.4% in 2028. Higher commodity costs, reduced purchasing power, and weaker confidence are all contributing to a slower trajectory.

A Precarious Journey with No Finish Line

The ECB now finds itself walking a narrow path. Energy-driven inflation keeps price risks alive, while the same forces weigh on economic activity. With no clear resolution in sight, decisions are likely to remain data-driven and assessed meeting by meeting, leaving the policy path open and the outlook uncertain.