ECB Set to Hold Rates Amid Rising Inflation Risks

The European Central Bank is expected to keep interest rates unchanged for a sixth straight meeting on Thursday, maintaining a cautious stance as policymakers navigate heightened uncertainty driven by escalating Middle East tensions and persistent inflation risks. The ECB will also release updated economic projections, while President Christine Lagarde’s press conference will be closely watched for signals on how the bank plans to address the economic fallout from the ongoing conflict. Last week, Lagarde reiterated the ECB’s commitment to ensuring inflation remains under control, stating that the bank will "do all that is necessary" to achieve this goal. Recent remarks from officials suggest a shift toward a more hawkish approach, as policymakers remain vigilant about the risk of another energy shock potentially triggering structural inflationary pressures.

European Central Bank President Christine Lagarde said the central bank will do everything necessary to keep inflation under control despite the latest surge in energy prices. Speaking in an interview on Tuesday, Lagarde stressed that policymakers remain committed to preventing a repeat of the sharp price spikes seen in recent years. “I can assure you ... that we will do everything necessary to keep inflation under control and to ensure that the French, the Europeans, do not experience inflationary increases like those we saw in 2022 and 2023,” she said. Lagarde noted that Europe is now better positioned to absorb the current energy shock than it was during the 2022 crisis, thanks to stronger policy responses and improved resilience across the region. However, she also warned that uncertainty and market volatility remain elevated

The European Central Bank said policymakers expected inflation to drop further below their 2% target before the recent surge in energy prices linked to the Middle East conflict. Minutes from the February 4–5 meeting showed officials were comfortable keeping interest rates unchanged and believed the overall outlook was stable, supported by the euro’s strength against the dollar. At the time, inflation was projected to fall below target in the near term, though policymakers warned that volatile energy prices could quickly alter the outlook. That risk has now become more visible after oil prices jumped more than 20% this week, which could push inflation higher in the short run since Europe relies heavily on imported energy. Markets are now pricing in a small chance of a rate hike by December. For now, the bank says its policy stance is appropriate, but it remains ready to adjust if inflation risks intensify.