The European Central Bank (ECB) has left its key interest rates unchanged, sticking to plans to slowly unwind extraordinary stimulus.
The ECB kept its main policy rate unchanged at minus 0.5% and repeated its statement that the “calibration of net purchases for the third quarter will be data-dependent and reflect its evolving assessment of the outlook”.
"How the economy develops will crucially depend on how the [Ukraine] conflict evolves, on the impact of current sanctions and on possible further measures," the ECB said.
Once the bond buying program is completed, the ECB is expected to begin hiking interest rates, following the same path as the Bank of England and the US Federal Reserve.
"Any adjustments to the key ECB interest rates will take place some time after the end of the Governing Council’s net purchases under the APP and will be gradual," it added.
The rate on the central bank's main refinancing operations remains at zero, its marginal lending facility at 0.25% and its bank deposit rate at negative 0.5%.
Eurozone inflation hit 7.5% in March, much higher than the ECB’s 2% target.
ECB President Christine Lagarde has warned Russia's war in Ukraine is "severely" impacting the eurozone economy, with surging energy costs, supply chain disruptions and weaker consumer confidence weighing on growth.
She said: "Russia’s aggression towards Ukraine is causing enormous suffering. It is also affecting the economy, in Europe and beyond.
"The conflict and the associated uncertainty are weighing heavily on the confidence of businesses and consumers. Trade disruptions are leading to new shortages of materials and inputs.
She added: "The war in Ukraine is severely affecting the euro area economy and has significantly increased uncertainty.
"The impact of the war on the economy will depend on how the conflict evolves, on the effect of current sanctions and on possible further measures. Inflation has increased significantly and will remain high over the coming months, mainly because of the sharp rise in energy costs."
Gurpreet Gill, macro strategist at Goldman Sachs Asset Management, said the next milestone in the ECB’s policy normalisation program will be a decision on the pace of asset purchases next quarter, and that this will likely be the focus at the central bank’s July meeting.
"With market-implied pricing already pointing to a July rate lift-off and a total of three rate hikes this year, we see limited scope for any hawkish rhetoric to push pricing higher," Gill added.
Neil Birrell at Premier Miton Investors questions whether the ECB's slow and steady approach will be enough.
"Coming into this meeting, the ECB had to deal with inflation being four times target. So it was no surprise to hear it say it will take whatever action is needed to fulfil its mandate.
"Asset purchases should end in the third quarter, then we will see rates up at some point after that. It is sticking with a gradual and flexible approach, which is good, but will it act fast enough? It is clear that the war in Ukraine is a major concern for the bank."
The ECB continues to forecast that inflation will dip back below its 2% target in two years time as energy prices retreat.
Watch: How does inflation affect interest rates?