ECB Set To Hold Rates But Leave Door Open To September Move
- Higher oil prices revive inflation risks - Lagarde expected to stress data dependency - September hike remains on the cards – analysts - Announcement due Thursday at 12:15 GMT / 14:15 CET - Press conference slated for 12:45 GMT / 14:45 CET
The recent resurgence in Middle East tensions has thrust inflation back into the spotlight, reinforcing the possibility that the European Central Bank may need to tighten policy further after its quarter-point rate increase in June.
Economists overwhelmingly expect the ECB's Governing Council to leave interest rates unchanged, maintaining the deposit facility at 2.25%, the main refinancing rate at 2.40%, and the marginal lending facility at 2.65%.
Morgan Stanley said the recent bout of oil-price volatility served as a reminder of the uncertainty surrounding the energy outlook. "This alone should steer the ECB away from leaning strongly in any direction in either the statement or the press conference," economist Jens Eisenschmidt wrote in a research note.
Following June's rate increase, the ECB said the conflict in the Middle East was generating inflationary pressures and that the decision to tighten policy was "robust across a range of scenarios" for how the shock could evolve and affect the euro area's medium-term outlook. Policymakers also warned that the outlook remained uncertain, with upside risks to inflation and downside risks to economic growth.
Return of energy risks
At the ECB's previous meeting on 11 June, the energy outlook appeared to be improving after the United States and Iran agreed a memorandum of understanding. On 17 June, the two sides announced a 60-day negotiating period towards a comprehensive settlement, which was formally endorsed by US President Donald Trump and Iranian President Masoud Pezeshkian at the Bürgenstock resort in Switzerland two days later.
That optimism proved short-lived. On 8 July, Trump declared the US-Iran agreement "over", accusing Tehran of repeatedly violating the pact. Oil prices subsequently surged and are currently trading around USD 20 per barrel above levels seen before the agreement collapsed.
Maintaining flexibility
At June's press conference, ECB President Christine Lagarde stressed that the rate increase was not simply an "insurance" move.
When asked about the Governing Council’s thought process, she said, "Our discussions were predicated on, obviously, the major energy shock that we have observed since the beginning of March, that is enduring longer than what was expected by geopolitical experts, and which we're beginning to see broadening throughout the economy, with direct costs being obvious, with indirect costs also showing up."
Since then, ECB officials have broadly maintained the same cautious stance, arguing that monetary policy remains appropriately restrictive while leaving open the possibility of further tightening should inflation risks intensify.
Markets are currently pricing roughly a 50% probability of another rate increase in late summer. Many economists view September as the more likely point for reassessing policy, when updated ECB staff projections and two additional inflation reports will be available.
Deutsche Bank Chief Economist Mark Wall continues to expect a second and final 25bp rate increase in September, taking the deposit rate to 2.50%. "In the July press conference, we expect the ECB to maintain neutral communications," Wall said. "This implies no explicit forward guidance, emphasising a data-dependent, meeting-by-meeting approach without pre-committing to a specific policy path. While the communication will be neutral, we believe the ECB's tone on inflation will still convey a hawkish stance, consistent with a further 25bp hike in September being highly probable."
TD Securities
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- Higher oil prices revive inflation risks
- Lagarde expected to stress data dependency
- September hike remains on the cards – analysts
- Announcement due Thursday at 12:15 GMT / 14:15 CET
- Press conference slated for 12:45 GMT / 14:45 CET
By Harry Daniels
LiveSquawk News
@HarryDaniels71
16:00 GMT | 22 July 2026
The recent resurgence in Middle East tensions has thrust inflation back into the spotlight, reinforcing the possibility that the European Central Bank may need to tighten policy further after its quarter-point rate increase in June.
Economists overwhelmingly expect the ECB's Governing Council to leave interest rates unchanged, maintaining the deposit facility at 2.25%, the main refinancing rate at 2.40%, and the marginal lending facility at 2.65%.
Morgan Stanley said the recent bout of oil-price volatility served as a reminder of the uncertainty surrounding the energy outlook. "This alone should steer the ECB away from leaning strongly in any direction in either the statement or the press conference," economist Jens Eisenschmidt wrote in a research note.
Following June's rate increase, the ECB said the conflict in the Middle East was generating inflationary pressures and that the decision to tighten policy was "robust across a range of scenarios" for how the shock could evolve and affect the euro area's medium-term outlook. Policymakers also warned that the outlook remained uncertain, with upside risks to inflation and downside risks to economic growth.
At the ECB's previous meeting on 11 June, the energy outlook appeared to be improving after the United States and Iran agreed a memorandum of understanding. On 17 June, the two sides announced a 60-day negotiating period towards a comprehensive settlement, which was formally endorsed by US President Donald Trump and Iranian President Masoud Pezeshkian at the Bürgenstock resort in Switzerland two days later.
That optimism proved short-lived. On 8 July, Trump declared the US-Iran agreement "over", accusing Tehran of repeatedly violating the pact. Oil prices subsequently surged and are currently trading around USD 20 per barrel above levels seen before the agreement collapsed.
At June's press conference, ECB President Christine Lagarde stressed that the rate increase was not simply an "insurance" move.
When asked about the Governing Council’s thought process, she said, "Our discussions were predicated on, obviously, the major energy shock that we have observed since the beginning of March, that is enduring longer than what was expected by geopolitical experts, and which we're beginning to see broadening throughout the economy, with direct costs being obvious, with indirect costs also showing up."
Since then, ECB officials have broadly maintained the same cautious stance, arguing that monetary policy remains appropriately restrictive while leaving open the possibility of further tightening should inflation risks intensify.
Markets are currently pricing roughly a 50% probability of another rate increase in late summer. Many economists view September as the more likely point for reassessing policy, when updated ECB staff projections and two additional inflation reports will be available.
Deutsche Bank Chief Economist Mark Wall continues to expect a second and final 25bp rate increase in September, taking the deposit rate to 2.50%. "In the July press conference, we expect the ECB to maintain neutral communications," Wall said. "This implies no explicit forward guidance, emphasising a data-dependent, meeting-by-meeting approach without pre-committing to a specific policy path. While the communication will be neutral, we believe the ECB's tone on inflation will still convey a hawkish stance, consistent with a further 25bp hike in September being highly probable."