Overview
- The ECB raised key rates by 25 basis points on June 11, lifting the deposit facility rate to 2.25% as a response to an energy‑driven surge in inflation.
- A swift retreat in oil prices in late June and softer preliminary June inflation readings in Germany, France and Italy have weakened the case for a July hike and pushed markets to price only about a one‑in‑three chance of action next month.
- Governing Council members are split on the next step, with several officials calling for a pause until updated staff projections while President Christine Lagarde and senior economists warn that upside risks to inflation remain.
- ECB staff now expect headline inflation near 3.0% in 2026 and see a slow return to 2% by 2028, noting that energy shocks can feed into wages and services over many months and so could still prompt further tightening if second‑round effects emerge.
- The policy debate and market repricing are already affecting the economy: the euro has weakened, bond yields and borrowing costs are adjusting, and households and firms face an uncertain path for financing costs that will depend on incoming inflation and oil data ahead of the July 23 meeting.