The ECB decided to leave key interest rates unchanged and confirmed that it would end the bond-buying program by the third quarter before it moves to hike interest rates.
INFLATION BITES
Inflation in the euro area inched much higher to 7.5 percent in March, compared with 5.9 percent in February.
"Price rises have become more widespread," ECB President Christine Lagarde said in a statement. "Inflation has increased significantly and will remain high over the coming months, mainly because of the sharp rise in energy costs."
Prior to the Russia-Ukraine conflict in February, the central bank insisted that the inflation in the euro area surged due to transitory elements and would drop gradually over time.
The Russia-Ukraine conflict and the sanctions slapped by the European Union (EU) pushed energy prices much higher, which had a knock-on effect on prices of a wide array of products.
Energy prices are now 45 percent higher than the same period last year, Lagarde said, adding it continues to be the main reason for the high inflation rate.
"The upside risks surrounding the inflation outlook have also intensified, especially in the near term," Lagarde noted.
BLEAK ECONOMIC OUTLOOK
According to Lagarde, the conflict between Russia and Ukraine is affecting the economy in Europe and beyond.
The economy in the euro area grew 0.3 percent in the last quarter of 2021 and the growth was estimated to remain weak during the first quarter of 2022, Lagarde said.
In its March staff projections, the ECB revised the outlook for growth down 0.5 percentage points for 2022 to 3.7 percent.
The German government's council of economic advisers has even lowered their growth forecast of the German economy by more than a half to 1.8 percent from 4.6 percent in 2022.
The conflict is severely affecting the euro area economy, Lagarde said, adding that the impact on the regional economy will depend on how the conflict evolves.
STAGFLATION DILEMMA
In contrast to its peers across the globe, who are rushing to hike interest rates to rein in soaring inflations, the ECB has been relatively slow in winding down stimulus measures and normalizing monetary policies.
Lagarde has been warning against acting hastily, which she fears could choke the economic recovery. Stubbornly high inflation coupled with a slow or stagnant economic growth constitutes stagflation, a situation central bankers across the world would try their best to avoid.
The ECB expressed its willingness to tame price spikes, which could be deeply entrenched once they translate into sharp wage growth.
"The Governing Council will take whatever action is needed to fulfil the ECB's mandate to pursue price stability and to contribute to safeguarding financial stability," Lagarde said.
"We stand ready to adjust all of our instruments within our mandate, incorporating flexibility if warranted, to ensure that inflation stabilizes at our two percent target over the medium term," she added.
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