ECB leaves rates on hold as expected; Not pre-committing to a particular rate path, is well positioned to navigate this uncertainty

• Not pre-committing to a particular rate path
• Interest rate decisions will be based on… inflation outlook and the risks surrounding it… dynamics of underlying inflation and the strength of monetary policy transmission
• Will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance
• The Governing Council is well positioned to navigate this uncertainty
• Implications for medium-term inflation depend crucially on the magnitude of indirect and second-round effects of a stronger and more persistent energy shock
• “Closely monitoring the situation”; data-dependent approach will guide setting monetary policy as appropriate
• Incoming information… will help the Governing Council assess how the war will affect the inflation outlook and the risks surrounding it
• War in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth
• Will have a material impact on near-term inflation through higher energy prices; medium-term implications depend on intensity and duration of conflict and transmission to consumer prices
• Determined to ensure that inflation stabilises at the 2% target in the medium term

• Growth seen at 0.9% in 2026, 1.3% in 2027, 1.4% in 2028; downward revision, especially for 2026, reflecting global effects of the war
• Inflation excluding energy and food seen at 2.3% in 2026, 2.2% in 2027, 2.1% in 2028; higher than December path due to energy pass-through
• Staff project headline inflation at 2.6% in 2026, 2.0% in 2027, 2.1% in 2028; revised up, especially for 2026, due to higher energy prices

• Staff also assessed how the war in the Middle East could affect economic growth and inflation under some alternative illustrative scenarios.
• The scenario analysis suggests that a prolonged disruption in the supply of oil and gas would result in inflation being above, and growth being below, the baseline projections.
• The implications for medium-term inflation depend crucially on the magnitude of indirect and second-round effects of a stronger and more persistent energy shock.

• APP and PEPP portfolios “declining at a measured and predictable pace” as principal reinvestments have ceased

• Stands ready to adjust all of its instruments” to ensure inflation returns to target; Transmission Protection Instrument available to counter disorderly market dynamics and preserve transmission

The ECB has maintained rates as expected while avoiding any specific commitments to a future rate path, signaling a flexible, data-driven approach. This implies they are closely monitoring inflation impacts from external shocks, particularly the ongoing Middle East conflict, which adds considerable uncertainty to both inflation and growth forecasts. Given this stance, watch for potential volatility in EUR/USD and related assets as market participants react to evolving economic conditions and the ECB's future monetary policy decisions.