ECB Sticks With Negative Rates Despite Surging Inflation, Diverging From Fed

FRANKFURT—The European Central Bank is likely to keep its key interest rate in negative territory for at least another year despite surging inflation in the eurozone, signaling a divergence with central banks such as the Federal Reserve that are already moving to phase out easy-money policies amid rapidly rising prices.

A combination of high inflation and softening economic growth is posing a dilemma for central banks. They want to keep their monetary stimulus in place long enough to ensure a strong recovery from the Covid-19 shock, but not so long that consumer-price growth becomes unmanageable. Inflation has surged to multidecade highs in the U.S. and other countries in recent months, driven by booming demand and supply-chain bottlenecks as economies reopen.