Monetary policy statement

Good afternoon, the Vice-President and I welcome you to our press conference. 

The Governing Council today decided to keep the three key ECB interest rates unchanged. While the incoming information has been broadly consistent with our previous assessment of the inflation outlook, the upside risks to inflation and the downside risks to growth have intensified. We are committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term.

The war in the Middle East has led to a sharp increase in energy prices, pushing up inflation and weighing on economic sentiment. 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. The longer the war continues and the longer energy prices remain high, the stronger is the likely impact on broader inflation and the economy.

We remain well positioned to navigate the current uncertainty. The euro area entered this period of surging energy prices with inflation at around our two per cent target, and the economy has shown resilience over recent quarters. Longer-term inflation expectations remain well anchored, although inflation expectations over shorter horizons have moved up significantly. 

We will closely monitor the situation and follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.

The decisions taken today are set out in a press release available on our website.

I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.

Economic activity

The euro area economy was showing some momentum when the current turbulence started. Real GDP grew by 0.1 per cent in the first quarter of 2026, according to Eurostat’s preliminary flash estimate. Domestic demand remains the main driver of growth, supported by a resilient labour market. However, the economic outlook is highly uncertain and will depend on how long the war in the Middle East lasts and how strongly it affects energy and other commodity markets, as well as global supply chains.

The incoming information suggests that the conflict is weighing on economic activity. Surveys point to slowing growth, and consumers and businesses have become less confident about the future since the war began. Longer delivery times and rising input prices suggest supply chains are coming under pressure.

Looking ahead, high energy costs are expected to continue to weigh on real incomes, making households and firms more reluctant to consume and invest. While unemployment remained close to historical lows in March, at 6.2 per cent, labour demand has cooled further. At the same time, households are still benefiting from a solid financial position, and investment should continue to be underpinned by governments spending more on defence and infrastructure and by firms increasingly investing in new digital technologies. This favourable starting point provides some cushioning against the fallout from the war.

The Governing Council highlights the urgent need to strengthen the euro area economy while maintaining sound public finances. Fiscal responses to the energy price shock should be temporary, targeted and tailored. Reforms to enhance the euro area’s growth potential and accelerate the energy transition to reduce reliance on fossil fuels are more vital than ever. Completing the savings and investments union is key to funding innovation, supporting the green and digital transitions and improving productivity. The digital euro and tokenised wholesale central bank money will enhance Europe’s strategic autonomy, competitiveness and financial integration, and will boost innovation in payments. It is thus essential to swiftly adopt the Regulation on the establishment of the digital euro. Simplifying and harmonising rules across the EU’s Single Market will help European firms grow faster.