April ECB meeting: In a good position to make the right decision

Market response

April 30, 2026 | 3 min read

Seema Shah

Chief Global Strategist

Christian Floro, CFA

Market Strategist

Magdalena Ocampo

Market Strategist

As expected, the European Central Bank (ECB) held policy rates steady today, extending its pause for a seventh straight meeting in the current easing cycle. Rates on the deposit facility, main refinancing operations, and the marginal lending facility remain at 2.00%, 2.15%, and 2.40%, respectively.

The ECB is starting from a good position, giving it time to assess data as it navigates the current shock from the Middle East conflict. Indeed, today’s rate pause reflects this, along with yet-to-be-observed second-round effects on inflation.

Nevertheless, as risks have intensified, the ECB stands ready to respond. While the decision to keep rates unchanged today was unanimous, a possible hike was debated. Moreover, ECB President Christine Lagarde also hinted that some tightening may be on its way.

Recent developments

Growth: While most recent euro area growth data has come in lower than previously expected, President Lagarde rejected calling the current environment stagflationary, noting that conditions today are vastly different to those in the 1970s. Growth had shown positive momentum before the conflict and, even with the recent slight slowdown, continues to be underpinned by resilient domestic demand, a resilient labor market, and strong investment activity. These factors should provide a cushion against the fallout from the Middle East conflict. Nevertheless, the outlook is highly uncertain: the conflict is likely to weigh on sentiment and activity, and risks are to the downside.

Inflation: Inflation has accelerated, primarily driven by surging energy prices. Nonetheless, the ECB is not yet seeing any second-round effects of higher energy costs. For now, indicators of underlying inflation remain supportive. The ECB’s wage trackers continue to indicate easing labor costs this year while longer-term inflation expectations remain anchored. However, as the period of higher energy prices extends, the impact on indirect and second-round effects should intensify and will need to be closely monitored

Risk scenarios: President Lagarde made it clear that the ECB's decision to drop the use of “tilted” in its risk assessment implied that both downside risks to growth and upside risks to inflation have intensified. Indeed, she acknowledged that the economy is clearly drifting away from the baseline scenario outlined in March, while stopping short of saying it is moving fully into the adverse scenarios the ECB also set out last month.

Policy outlook

At the start of the year, expectations of robust growth and rising price pressures led some in the market to price in the possibility of a rate hike this year. Fast forward to April, and the sharp rise in energy costs has weakened the growth outlook while amplifying inflation risks—producing a stagflationary mix the ECB cannot ignore. While the uncertainty surrounding the conflict argues against knee‑jerk policy responses, without a sharp easing in geopolitical tensions and a swift restoration of oil and gas flows through the Strait of Hormuz, the pressures for a rate hike are building quickly.

Raising policy rates once or twice this year, as we expect, would take the ECB only to the upper end of its estimated neutral range, rather than into restrictive territory. This would give policymakers the optionality they seek: signaling clearly that they will not tolerate a de‑anchoring of inflation expectations, while avoiding an unnecessary drag on growth at a time when households and businesses are already under strain from higher energy costs.

President Lagarde struck a measured tone at today’s meeting, but the calls for rate hikes are growing louder—and by June, they may be too loud to ignore.

Macro views

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