ECB leaves rates unchanged in March

The ECB stands still: On 18–19 March, the European Central Bank (ECB) kept its deposit rate at 2.00% for the sixth consecutive meeting, in line with market expectations. As a result, the deposit rate lies at its lowest level since early 2023. The ECB also held its refinancing and lending rates, leaving them at 2.15% and 2.40%, respectively.

The ECB is “well positioned”: The decision to hold was driven by near-target inflation, well-anchored long-term inflation expectations, and resilient GDP growth in recent quarters. Moreover, the high uncertainty linked to the conflict in the Middle East favored adopting a wait-and-see stance. The ECB considers itself to be “well positioned to navigate this uncertainty”.

Bank to stand pat for now: That said, the ECB clearly shifted into alert mode at this meeting, stating it was “closely monitoring” the economic fallout of the Iran war. The conflict has already led the ECB to revise up its inflation forecasts for 2026 and to lower its GDP growth projections for the year. Still, there was no forward guidance, as the ECB reaffirmed its data-dependent approach to policymaking. The vast majority of our panelists expect the ECB to stand pat through the end of 2026, with only a few of them revising their forecasts for rates upward compared to the previous monetary policy meeting. That said, upside risks to rates are piling up due to the conflict in the Middle East, and will further depending on the duration of the energy price shock, its pass-through to the broader economy and its impact on inflation expectations.

Panelist insight: Commenting on the outlook, Nomura analysts stated: “For the ECB to raise rates, we believe the Governing Council will want to see the shock is causing underlying inflation persistence, as in 2022, or that the shock meaningfully raises inflation expectations. As a result, we believe June is the earliest meeting that the ECB could feasibly raise rates, in order to obtain an accumulation of evidence to justify raising rates.” Nordea’s analyst Jan von Gerich added: “Our own baseline has been that the ECB will not hike rates until next year. Risks to this forecast have increased significantly, and unless the war in the Middle East ends in the next few weeks and energy prices fall back, we will most likely move the first rate hike significantly closer, maybe to the June meeting. However, a relatively quick calming down of the situation could still mean that the ECB stays on hold for a longer time, though the events of the past few days have dented the odds of such a scenario.”

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