The European Central Bank kept its three key rates unchanged on April 30, leaving the deposit facility at 2.00%, the main refinancing rate at 2.15% and the marginal lending rate at 2.40%, according to the official policy decision. The hold itself was expected. The important shift was in the wording: the ECB said upside risks to inflation and downside risks to growth had intensified, explicitly tying that change to the Middle East war and the jump in energy prices.

This is a more uncomfortable mix for markets than a simple pause. The Governing Council said incoming data had broadly matched its prior view, but warned that the longer the energy shock lasts, the stronger the likely impact on broader inflation and the economy. In other words, Frankfurt now has to manage stagflation risk rather than a clean disinflation glide path. That makes the 2.00% deposit rate less about where policy stands today and more about how narrow the path to future cuts has become.

The ECB also went out of its way to keep optionality. It said it will follow a data-dependent, meeting-by-meeting approach and is "not pre-committing to a particular rate path." The APP and PEPP portfolios will continue to run off without reinvestment, so balance-sheet normalization remains intact. For European rates, credit and FX markets, that combination means the central bank is still holding restrictive settings while leaving itself room to react if energy inflation starts feeding into core prices or wage behavior.

What matters next is whether the energy shock fades before it contaminates medium-term inflation expectations. If it does, the ECB can resume discussing easing with more confidence. If it does not, euro area growth will likely weaken before policy gets any more supportive. That is a harder setup for banks, cyclicals and sovereign spreads than markets were pricing a month ago.

Not investment advice. Verify all figures with primary sources before acting.

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ECB keeps deposit rate at 2.00%; energy shock lifts inflation risk