ECB holds rates at 2.25% and signals September hike possibility
The ECB kept its deposit rate at 2.25% after inflation eased in June, but warned that energy tensions in the Middle East could trigger another increase in September.
The European Central Bank (ECB), led by Christine Lagarde, decided on July 23 to hold its key interest rate, the deposit rate, unchanged at 2.25%, after raising it by 25 basis points in June. The other two key rates were also held steady: the main refinancing operations rate (MRO) at 2.40% and the marginal lending facility rate (MLF) at 2.65%.
Moderating inflation
The pause follows a decline in eurozone inflation by 0.4 percentage points in June to 2.8%, from 3.2% in May—the first drop of the year. This data gave the ECB’s Governing Council room to hold rates steady this meeting, after the previous month’s hike.
The shadow of the Middle East
However, the Frankfurt-based institution did not close the door on further increases. In its statement, the ECB warned that “uncertainty persists” due to the energy crisis stemming from the war in the Middle East, with Brent crude oil prices nearing $100 per barrel. This factor keeps open the possibility of another rate hike at the September meeting, a scenario already priced in by markets.
A distant target
The ECB’s own baseline scenario forecasts that inflation will not return to its 2% target before late 2027 if the geopolitical conflict in the region continues to push energy prices higher. Meanwhile, market consensus places the peak of this tightening cycle between 2.5% and 3%, a range that will largely depend on how tensions in the Middle East evolve in the coming weeks.
Thursday’s decision reflects the ECB’s delicate balancing act: on one hand, moderating price pressures in the eurozone call for caution; on the other, external energy risks demand keeping all options on the table heading into autumn.
Sources: Infobae.