Publications

Overall, the ECB delivered as expected, pausing to assess incoming data and the evolution of the war and energy shock. The lack of clear second-round effects supports this wait-and-see stance for now, but as uncertainty persists, the likelihood of a June rate hike is increasing.

If a year ago the International Monetary Fund (IMF) meetings in Washington revolved around tariffs, this year the conflict in Iran has overshadowed that debate.

The ECB is addressing the supply shock stemming from the conflict in the Middle East by using economic scenarios. The institution is taking a watchful stance toward inflation risks and the persistence of energy prices to avoid second-round effects on the economy.

The ECB’s March policy meeting was shaped by the Middle East crisis, which complicates the macro outlook. If the conflict persists, rate hikes cannot be ruled out, in an environment of elevated uncertainty and a firmly data-dependent policy stance.

The ECB has been holding its key policy interest rate at 2% for several months, with medium-term inflation forecasts close to its target and a relatively positive assessment of the European economy, which is growing near its potential rate.

Europe has managed to bring inflation back to the ECB’s target without triggering a recession, although the challenge now is to keep it there in an environment that is more exposed to global shocks.

After the fastest monetary tightening cycle in decades (2022-2023), the main central banks have begun a process of lowering interest rates, with the “last mile” characterized by a cautious approach.