Europe | Six weeks: the ECB’s pause

Summary

The ECB kept interest rates unchanged due to the worsening situation in the Middle East. The institution has adopted a wait-and-see stance and plans to gather new data through June before making decisions.

Key points

• Key points:
• The price of Brent crude oil has returned to the $120 range amid the continued closure of the Strait of Hormuz and the lack of progress between the United States and Iran.
• Inflation has risen to 3%, core inflation is slightly above 2%, and high commodity prices and strong input cost pressures persist across supply chains.
• Risks to economic growth and inflation have increased in opposite directions, moving both indicators away from the baseline scenario outlined in March.
• The president ruled out a severe stagflation risk similar to that of the 1970s, reaffirming the monetary authority’s firm commitment to achieving its inflation target.
• There is internal pressure to raise rates, but the ECB aims to avoid a hasty mistake and acknowledges that if conditions worsen, inflation will take precedence over growth.

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