The European Central Bank kept interest rates unchanged as scheduled and warned that the Middle East conflict could drive up inflation and drag down growth.

The European Central Bank maintained the three key interest rates as scheduled. The European Central Bank stated that although the latest data is broadly in line with the Governing Council's previous assessment of inflation outlook, both the upside risks to inflation and downside risks to growth have increased. The Middle East conflict has led to a significant increase in energy prices, pushing up inflation and denting economic confidence. The impact of the conflict on medium-term inflation and economic activity will depend on the intensity and duration of the energy price shock, as well as the magnitude of its indirect and second-round effects. The longer the conflict lasts and the longer energy prices remain elevated, the greater the potential impact on overall inflation and the economy. The European Central Bank noted that long-term inflation expectations remain stable, despite a significant rise in short-term inflation expectations. The Governing Council will monitor the situation closely and determine the appropriate monetary policy stance in a data-dependent, gradual manner through successive meetings. The Governing Council will not pre-commit to a specific path for interest rates.