En
EsECB Holds Rates, Watches Energy Shock Risks for Inflation
The European Central Bank left rates unchanged on Thursday, keeping the deposit rate at 2.25% while assessing how a renewed energy shock from the Middle East could affect eurozone inflation.
The European Central Bank kept interest rates unchanged on Thursday, leaving the deposit rate at 2.25%, the main refinancing rate at 2.4% and the marginal lending facility at 2.65%. Policymakers are assessing how an energy shock linked to the Middle East conflict could influence prices across the eurozone.
In its statement, the Governing Council highlighted that "the outlook for energy prices, while highly volatile, currently stands close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict in the Middle East." It added that "uncertainty remains high and the full inflationary impact of the energy shock has yet to play out," with close monitoring of the shock's intensity, duration and any indirect or second-round effects. Ahead of the decision, the dollar strengthened on higher Fed hike expectations, while traders focused on the ECB’s response to rising energy risks.
Headline inflation eased to 2.8% in June from 3.2% in May, the first decline this year. Core inflation slowed to 2.4%. The pause follows an increase six weeks ago, the first in nearly three years, after energy costs had driven inflation to the highest level since September 2023.
At the central bank's Sintra forum, President Christine Lagarde argued that June's increase was not an "insurance hike" but a response to a concrete inflation risk. Internal projections showed a return to the 2% target only in late 2027 and only if policy tightened further. Lagarde also remarked that "forward guidance is not currently in the cards."
July is not a forecasting round for the ECB. The Governing Council will consider updated staff projections in September when deciding on the policy path. For traders, central bank rate decisions are among the highest-impact events on the economic calendar because both the policy move and the accompanying statement can drive currency volatility.
Energy prices have swung sharply this year. Oil approached $120 a barrel in March before dropping toward $72 after an interim peace agreement at the end of June. Subsequent tensions, tanker attacks and renewed sanctions lifted Brent crude back above $90. A lasting rise in energy costs would feed into household bills and headline inflation in the second half of the year.
Among major peers, the Federal Reserve's target range stands at 3.50% to 3.75% and the Bank of England's rate at 3.75%, while the Swiss National Bank is at 0%. The Fed meets next Wednesday, and the Bank of England on July 30.
