The European Central Bank (ECB) announced today that it would leave the three key ECB interest rates unchanged. The interest rates on the deposit facility, main refinancing operations and the marginal lending facility will remain at 2.0%, 2.15%, 2.4% respectively.

The European economy grew by 0.1% in Q1 of 2026 driven by strong domestic demand and a resilient labour market. The duration of the conflict in the Middle east and the impact on commodity markets will dictate the outcome on the economic growth. Business have become less confident about the future and longer delivery times coupled with rising input prices suggest supply chains are coming under pressure.

High energy costs are expected to weigh on real income and reduce consumption and investments. Unemployment rates were close to historical lows in March at 6.2%, but labour demand has cooled further.

Inflation rose to 3.0% in April, from 2.6% in March, with energy prices up 10.9%. Food price inflation was up to 2.5% in April, excluding food and energy, inflation was down to 2.2% in April. Inflation expectations have moved up significantly over shorter horizons, but in medium to long term, inflation is expected to return to 2% target.

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 Governing Council notes it is determined to see inflation stabilise at its 2.0% medium-term target. The Transmission Protection Instrument is also available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro

Source: European Central Bank: Monetary policy decisions (Press Release); Monetary Policy Statement (Press Conference)