Christine Lagarde, president of the European Central Bank, had a difficult message to deliver on Thursday 30 April: the short-term inflation outlook has deteriorated, but the Governing Council still believes that “longer-term inflation expectations remain well anchored, although inflation expectations over shorter horizons have moved up significantly.” In effect, the ECB is acknowledging near-term pressure while arguing that the medium-term picture has not yet deteriorated enough to justify a rate move.
“Sharp increase in energy prices”
The ECB kept the deposit facility rate at 2.00%, the main refinancing operations rate at 2.15% and the marginal lending facility rate at 2.40%.
The decision came even as the central bank warned that the war in the Middle East had led to a “sharp increase in energy prices”, pushing up inflation and weighing on economic sentiment. “The longer the war continues and the longer energy prices remain high, the stronger is the likely impact on broader inflation and the economy,” Lagarde said.
She also pointed to the main uncertainty facing policymakers: whether the energy shock remains temporary or spreads into the wider economy. “The implications of the war for medium-term inflation and economic activity will depend on the intensity and duration of the energy price shock and the scale of its indirect and second-round effects.”
For now, though, that was not enough to move rates.
“Not pre-committing”
Lagarde said the ECB would continue to follow a data-dependent and meeting-by-meeting approach. She added that future rate decisions would depend on the inflation outlook, incoming economic and financial data, underlying inflation and the strength of monetary policy transmission.
At the risk of repeating herself, she noted that the council is “not pre-committing to a particular rate path”, while also assuring that it is “ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2% target in the medium term.”
She confirmed that the asset purchase programme (APP) and pandemic emergency purchase programme (Pepp) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests principal payments from maturing securities.
The ECB will have six weeks of data to plan its next move before the council meets again on 11 June 2026 in Frankfurt.
