ECB leaves rates unchanged in April

The ECB stands still: At end-April, the European Central Bank (ECB) kept its deposit rate at 2.00% for the seventh 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.

Wait-and-see approach in light of high uncertainty: The decision to hold was likely driven by a desire to get greater clarity over the impact of Middle East conflict on inflation before embarking on any hike. In addition, the Bank mentioned that long-term inflation expectations remained well-anchored, and commented on the conflict’s downside risks to GDP growth.

Bank to stand pat for now: Since the end of February, many of our panelists have revised up their 2026 policy rate forecasts. Our Consensus is now for around a 25-basis-point rise in rates by the end of this year as the ECB looks to ward off inflation. However, a good number panelists are for now sticking to their forecasts of rates remaining on hold. The resumption of energy flows via Hormuz is the key factor to watch.

Panelist insight: Commenting on the outlook, Goldman Sachs analysts stated: “We view [the ECB’s] communication as consistent with our forecast of two hikes (25bp moves in June and September). A hold remains possible with a material decline in energy prices, benign price-related data and signs of sharply weaker demand. But further upside pressure on energy prices, stronger indirect inflation effects and signs of building wage pressures could necessitate more than two hikes this year. We thus see broadly balanced risks around our two-hike baseline.” ING’s Carsten Brzeski added: “Unless there is a quick end to the war in the Middle East, headline inflation continues to increase and knock-on effects on transportation, food prices and other parts of the supply chain continue, the ECB is clearly moving towards a rate hike in June.”

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