Overview
- The European Central Bank left its three key rates unchanged at the levels set in June when it raised the deposit rate to 2.25%, with the Governing Council stressing a data‑dependent, meeting‑by‑meeting approach on Thursday.
- President Christine Lagarde and the ECB warned that renewed fighting in the Middle East and shipping disruptions have pushed oil above pre‑conflict levels, creating upside risks that could force further tightening.
- Markets treated the hold as a cautious pause and continue to price roughly two to three additional ECB rate increases later in the year, keeping September and October as the next likely dates for action.
- The ECB said it stands ready to adjust all instruments, including limiting reinvestment of APP/PEPP principal and using the Transmission Protection Instrument to defend smooth policy transmission if markets become disorderly.
- Other central banks face the same trade‑offs: the South African Reserve Bank also paused, keeping the repo at 7% with a 4‑2 vote while warning higher oil will keep inflation elevated and leave September open for further moves.