Overview
- Markets and most analysts expect the ECB to hold its deposit rate at 2.25% at the meeting on Thursday after the bank raised rates in June for the first time since 2023.
- Renewed fighting in the Middle East and Iran's declaration that the Strait of Hormuz is closed have pushed oil prices higher and increased the risk that headline inflation will rebound.
- Traders have swung their expectations for the cycle's end from about 2.50% to 2.75% as oil prices fell and then rose, leaving scope for a surprise if underlying price pressure shows up.
- This meeting will not include new ECB staff forecasts, so the policy statement and Lagarde's press conference will carry extra weight for guidance on future moves.
- If energy prices stay elevated, households and businesses could face higher fuel and transport costs over coming months, which would make another rate rise in September more likely and slow growth.