By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Friday said the war in the Middle East had made the outlook “significantly more uncertain” and reiterated that the ECB would stay data-dependent and refrain from pre-committing to any rate path.

In a statement to the International Monetary and Financial Committee during the IMF Spring Meetings, Lagarde said the conflict was creating “upside risks for inflation and downside risks for economic growth,” while having “a material impact on near-term inflation through higher energy prices.”

Still, she gave no sign that the Governing Council had moved away from its established reaction function after leaving rates unchanged in March.

“We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance,” Lagarde said.

“In particular, our interest rate decisions will be based on the inflation outlook and the risks surrounding it, as well as the dynamics of underlying inflation and the strength of monetary policy transmission,” she said. “We are not pre-committing to a particular rate path.”

Lagarde said the medium-term implications of the war would depend on “the intensity and duration of the conflict” and on how higher energy prices fed through to consumer prices and the broader economy.

“We are closely monitoring the situation, and the incoming information in the period ahead will help us assess the impact of the war on the inflation outlook and the surrounding risks,” she said.

On inflation, Lagarde observed that headline euro-area inflation had risen to 2.6% in March from 1.9% in February because of higher energy inflation, while core inflation had eased to 2.3% and food inflation to 2.4%.

She also said indicators of underlying inflation remained consistent with the ECB’s 2% medium-term target and pointed to easing domestic cost pressures, noting that nominal wage growth had slowed to 3.7% in the fourth quarter of 2025 from 4.0% in the third quarter.

The March staff projections see headline inflation averaging 2.6% in 2026, 2.0% in 2027 and 2.1% in 2028, she reminded, with the profile revised up from December mainly because the war pushed energy-price assumptions higher.

Core inflation is seen moderating from 2.3% in 2026 to 2.2% in 2027 and 2.1% in 2028, she said, adding that the path was also higher than in the December projections because of energy-cost pressures, though easing labor costs, the euro’s earlier appreciation and higher imports from China were cushioning the effect.

Lagarde said the March projections also included alternative scenarios, both of which suggested that a prolonged disruption in oil and gas supply would leave inflation above the baseline path because of stronger pass-through and more pronounced second-round effects.

She said risks to the inflation outlook were tilted to the upside, especially in the near term, though inflation could also turn out lower than expected if the economic effects of the war faded more quickly, if indirect and second-round effects proved weaker than assumed, or if countries with overcapacity stepped up exports to the euro area.

On growth, Lagarde said the euro-area economy had entered the latest period of uncertainty from “a relatively solid position,” having expanded by 1.4% in 2025.

The baseline in the March projections sees real GDP growth of 0.9% this year, rising to 1.3% in 2027 and 1.4% in 2028, she said, while downside risks were concentrated in the near term.

Lagarde said an adverse scenario assuming energy supply disruptions through the third quarter of 2026 would leave growth lower next year before it gradually converged back to baseline, while a severe scenario involving a more prolonged disruption through late 2026 would reduce growth significantly both this year and next.

She also pointed to the Governing Council’s February decision to enhance the Eurosystem repo facility for central banks, or EUREP, saying the move reflected a more uncertain and potentially more volatile global environment in which financial disruptions could hamper the smooth transmission of monetary policy.

Under the updated framework, effective from the third quarter of 2026, EUREP will in principle offer standing access to all central banks unless excluded on grounds including money laundering, terrorist financing or international sanctions, she said.

Lagarde said euro-area financial markets had so far remained broadly orderly and described the banking system as resilient, though she warned that the region remained exposed to abrupt repricing and tighter financial conditions because of its deep integration into global value chains.