The European Central Bank held interest rates steady at its March meeting while issuing an unusually stark warning about stagflation risks in the eurozone. President Christine Lagarde noted that ‘growth remains anaemic while price pressures persist’ in a press conference following the decision.
Eurozone GDP growth was revised down to 0.6 percent for 2026, well below the 1.2 percent forecast issued six months ago. Meanwhile, core inflation remains stuck at 2.8 percent, stubbornly above the ECB’s 2 percent target despite months of tight monetary policy.
European equities fell modestly on the news, with the Euro Stoxx 50 declining 0.6 percent. The euro weakened against the dollar as traders assessed the divergent monetary policy outlooks between the two central banks.
Lagarde indicated the ECB stands ready to act in either direction depending on incoming data, but stressed the bank would not cut rates prematurely at the risk of allowing inflation expectations to become unanchored.
Economists described the ECB’s position as increasingly difficult, with southern European economies showing signs of recession while northern economies maintain modest growth, creating tension within the governing council.