ECB holds rates at 2% as inflation rises and eurozone growth slows

The ECB maintained key interest rates at their lowest level in more than two years, matching market expectations.

The Frankfurt-based monetary institution held its deposit facility rate at 2% on Thursday for the third consecutive meeting.

"The Governing Council today decided to keep the three key ECB interest rates unchanged," the bank said in a statement on Thursday.

The ECB said incoming data had largely confirmed its previous inflation outlook, but that risks were shifting — with price pressures building on the upside and growth weakening on the downside.

The bank reaffirmed its commitment to bringing inflation back to its 2% target over 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 statement continued.

This comes despite the latest data showing that inflation jumped to 3% in the eurozone in April, way above the central bank’s 2% target.

The rate decision was preceded by heightened uncertainty, with President Christine Lagarde warning that the "stop-start nature" of the Iran war is making the economic outlook harder to assess.

Fresh data published Thursday deepened concerns about the eurozone economy.

Inflation across the 20-country bloc came in at 3%, though core inflation — which strips out energy and food costs — held at 2.2%. GDP growth, meanwhile, slowed to 0.8% in the first quarter of 2026, year on year.

The picture is one of stagflation compounded by geopolitical instability. Major economies including Germany and Italy have cut their growth forecasts as energy costs climb, leaving the ECB to balance support for a slowing economy against the need to keep prices in check.

The bank has said the consequences of the Iran war, particularly elevated energy prices, remain difficult to assess.

For now, policymakers appear to be in wait-and-see mode, monitoring whether energy-driven inflation feeds through into broader price pressures.

"War, ceasefire, peace talks, their collapse, a naval blockade, its lifting, its reinstatement — makes it exceptionally hard to gauge the duration and depth of the consequences," Lagarde said last week.

On Thursday morning, Brent crude temporarily surged above $126 per barrel, adding significant pressure to a European economy already struggling with supply-side disruptions.