Overview
- The European Central Bank kept its deposit rate at 2.25% and left its one-day and one-week funding rates at 2.65% and 2.40%, respectively.
- The Governing Council said it will not tighten now but retained a conditional bias to raise rates if the energy-price shock leads to broader inflationary pressures.
- The bank noted energy-price paths are close to the Eurosystem’s June projection yet remain well above levels before the Middle East escalation.
- Markets are pricing roughly two additional ECB hikes by year-end, with investors and policymakers focusing on data ahead of the September 9–10 meeting.
- The July pause follows the first ECB increase in almost three years in June and comes after recent softer readings on prices, wages and activity that have eased immediate urgency; higher borrowing costs for households and firms could return if the ECB tightens again.