FRANKFURT, March 19 - The European Central Bank maintained its key policy rate at 2% on Thursday and emphasised that the war in the Middle East is clouding prospects for both growth and inflation across the euro area.
Speaking at a news conference after the policy decision, ECB President Christine Lagarde outlined the main drivers of recent economic activity and the risks facing the outlook.
Growth drivers
Lagarde said that recent expansion in the euro zone was "underpinned mainly by services." She added that staff projections continue to see private consumption as "the main driver of growth over the medium term."
Middle East conflict and commodity markets
On the impact of geopolitical tensions, Lagarde warned that "the war in the Middle East is disrupting commodity markets and weighing on real incomes and confidence." She said those developments had prompted a downward revision to consumption and investment in the ECB staff baseline projections, particularly for 2026.
"The war in the Middle East is disrupting commodity markets and weighing on real incomes and confidence. This has led to a downward revision of consumption and investment in the baseline staff projections, especially for 2026."
Lagarde noted that the economic consequences would be larger in alternative scenarios involving a more prolonged or severe energy shock.
External environment
The ECB president described the external backdrop as challenging, pointing to volatile global trade policies as an additional source of uncertainty. She reiterated that developments abroad are an important factor in the bank's assessment of the outlook.
Monetary policy approach
On policy strategy, Lagarde said the ECB will remain flexible and evidence-driven: "We will 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."
Fiscal guidance on energy shocks
Addressing policy responses to energy price pressures, Lagarde recommended that any fiscal measures be "temporary, targeted, and tailored."
The ECB's choice to hold its main rate at 2% comes as officials weigh how persistent energy price disruptions and elevated uncertainty from the Middle East conflict could alter the trajectory of consumption, investment and inflation across the euro zone.