MNI ECB WATCH: ECB Holds, Keeps Meeting-By-Meeting Approach

The European Central Bank as expected held its benchmark deposit at 2% on Thursday for the first time after seventh consecutive cuts, with President Christine Lagarde indicating that the ECB will keep its meeting-by-meeting approach as uncertainty remains higher given trade and geopolitical tensions

The decision to keep policy unchanged was unanimous, Lagarde told a news conference after the deposit rate was held at 2%.

“You could argue that we are on hold. We are in this wait and watch our situation,” she said, adding that it was still hard to assess the trade outlook despite reports of a deal near between the U.S. and the U.S. based around a 15% tariff on European exports.

“The ultimate net off result in terms of inflationary forces or disinflationary forces cannot be determined at this point in time. Why is that? Because it's a very complicated set of factors that we will have to analyse, take into account to determine what the impact will be,” she said.

While the ECB assumes that the impact of U.S. tariffs on global imports will tend to be more deflationary, there could be upward pressure on some prices if they disrupt supply chains, Lagarde said.

“The jury is out as to how quickly the uncertainty will be cleared,” she said, adding that that uncertainty itself is affecting the expectations of consumers and investors.

Asked about potential concerns over undershooting inflation, Lagarde noted that the ECB’s 2026 projections already pointed to such an outcome, but that this was still in line with reaching the medium term 2% target. (See MNI SOURCES: Projections Confirmed So Far, Sept Cut Likely)

“We are not going to be moved away by some minor deviation and we are looking at the medium-term targets that we have. and we will proceed on the basis of that three elements to determine our monetary policy stance,” she said, though she conceded that there would always be two or three policymakers on the Governing Council concerned about the risk of undershooting.

BETTER ECONOMY

Despite risks to economic growth being tilted to the downside, the economy grew more than expected in Q1, due to stronger-than-expected consumption and investment than expected, and as some activity was frontloaded ahead of tariffs, Lagarde said.

Referring to comments by  ECB Vice President Luis de Guindos that a euro above USD1.20 would be problematic, Lagarde said that while the ECB does not target any set exchange rate, it monitors it, as it matters for inflation projections.

"I'm here quoting my dear friend, colleague, vice president, who said recently, we take into account exchange rate to forecast inflation, we are exactly on the same page in terms of our message regarding exchange rate,” she said.