AlphaWire

newswire

The European Central Bank keeps interest rates unchanged as scheduled, and the market still expects two interest rate hikes this year

2026-07-23·newswire-us-stock-184934
The European Central Bank keeps interest rates unchanged as scheduled, and the market still expects two interest rate hikes this year.

On Thursday local time, the European Central Bank announced that it would keep interest rates unchanged, but investors expect that as the war in the Middle East continues to drive up inflation, the European Central Bank will further increase borrowing costs in the coming months to curb price increases.

The European Central Bank kept its benchmark deposit rate unchanged at 2.25%, in line with market consensus. This comes after the bank raised interest rates last month for the first time in nearly three years.

As the situation in the Strait of Hormuz continues to escalate and international oil prices approach US$100 per barrel again, the risk of inflation caused by the war is heating up again. This time on hold is intended to buy policymakers more time to assess the impact of the breakdown of the U.S.-Iran ceasefire agreement in June on the inflation outlook.

As the conflict escalates again, oil and natural gas prices rise again, which may push inflation further away from the European Central Bank's 2% target. Previously, as the ceasefire briefly depressed energy prices, the year-on-year increase in consumer prices in the Eurozone fell to 2.8% in June from 3.2% in May.

"Uncertainty remains high and the full impact of energy price shocks on inflation has yet to be fully felt," the ECB said in its monetary policy statement released on Thursday. The bank also pointed out that the overall current energy price outlook is still basically consistent with the June baseline forecast.

Currently, ECB officials are paying close attention to whether rising energy costs have been transmitted to other areas of the economy. If higher energy prices evolve into broader price pressures, it will further strengthen the case for maintaining higher interest rates.

European Central Bank President Christine Lagarde said last month: "When you see inflation picking up in the way it has, and when price pressures are spreading throughout the economy, we believe that this inflation must be fully taken into account and measures must be taken to deal with it." At the same time, driven by rising energy prices, European

government bond yields continued to rise, and the financing costs of various governments rose to the highest level in more than a decade. The European Central Bank has moved more quickly than the Federal Reserve and the Bank of England to combat inflation driven by energy prices.

Since the outbreak of the Middle East war at the end of February this year, neither the Federal Reserve nor the Bank of England has started to raise interest rates.

The two central banks are widely expected to keep interest rates unchanged at next week's interest rate meeting, but traders are betting that they will follow the European Central Bank in raising interest rates in the coming months.

Analysts believe that the European Central Bank has more room to raise interest rates because its policy rate is still more than a percentage point lower than that of major central banks and is still in what many economists consider a neutral interest rate range - one that will neither stimulate the economy nor significantly inhibit economic growth.

According to interest rate derivatives market pricing, investors expect the European Central Bank to raise interest rates twice more this year, at the September and December interest rate meetings. However, Lagarde said the ECB may not need to adopt aggressive tightening policies this time as it did during the 2022 energy crisis.

At a press conference, Lagarde said the conflict in the Middle East remained a major source of uncertainty and she was closely watching the magnitude and duration of the rise in energy prices and how it affected inflation expectations and overall economic dynamics in price and wage settings.

Lagarde's term as ECB president was originally scheduled to end in October 2027. But Lagarde said earlier this month that she would not rule out leaving office early to participate in next year's French presidential election to replace current President Macron.

#Stocks #Fed #Bonds #Oil

Full text

The European Central Bank keeps interest rates unchanged as scheduled, and the market still expects two interest rate hikes this year

On Thursday local time, the European Central Bank announced that it would keep interest rates unchanged, but investors expect that as the war in the Middle East continues to drive up inflation, the European Central Bank will further increase borrowing costs in the coming months to curb price increases. The European Central Bank kept its benchmark deposit rate unchanged at 2.25%, in line with market consensus. This comes after the bank raised interest rates last month for the first time in nearly three years. As the situation in the Strait of Hormuz continues to escalate and international oil prices approach US$100 per barrel again, the risk of inflation caused by the war is heating up again.

On Thursday local time, the European Central Bank announced that it would keep interest rates unchanged, but investors expect that as the war in the Middle East continues to drive up inflation, the European Central Bank will further increase borrowing costs in the coming months to curb price increases. The European Central Bank kept its benchmark deposit rate unchanged at 2.25%, in line with market consensus. This comes after the bank raised interest rates last month for the first time in nearly three years. As the situation in the Strait of Hormuz continues to escalate and international oil prices approach US$100 per barrel again, the risk of inflation caused by the war is heating up again. This time on hold is intended to buy policymakers more time to assess the impact of the breakdown of the U.S.-Iran ceasefire agreement in June on the inflation outlook. As the conflict escalates again, oil and natural gas prices rise again, which may push inflation further away from the European Central Bank's 2% target. Previously, as the ceasefire briefly depressed energy prices, the year-on-year increase in consumer prices in the Eurozone fell to 2.8% in June from 3.2% in May. "Uncertainty remains high and the full impact of energy price shocks on inflation has yet to be fully felt," the ECB said in its monetary policy statement released on Thursday. The bank also pointed out that the overall current energy price outlook is still basically consistent with the June baseline forecast. Currently, ECB officials are paying close attention to whether rising energy costs have been transmitted to other areas of the economy. If higher energy prices evolve into broader price pressures, it will further strengthen the case for maintaining higher interest rates. European Central Bank President Christine Lagarde said last month: "When you see inflation picking up in the way it has, and when price pressures are spreading throughout the economy, we believe that this inflation must be fully taken into account and measures must be taken to deal with it." At the same time, driven by rising energy prices, European government bond yields continued to rise, and the financing costs of various governments rose to the highest level in more than a decade. The European Central Bank has moved more quickly than the Federal Reserve and the Bank of England to combat inflation driven by energy prices. Since the outbreak of the Middle East war at the end of February this year, neither the Federal Reserve nor the Bank of England has started to raise interest rates. The two central banks are widely expected to keep interest rates unchanged at next week's interest rate meeting, but traders are betting that they will follow the European Central Bank in raising interest rates in the coming months. Analysts believe that the European Central Bank has more room to raise interest rates because its policy rate is still more than a percentage point lower than that of major central banks and is still in what many economists consider a neutral interest rate range - one that will neither stimulate the economy nor significantly inhibit economic growth. According to interest rate derivatives market pricing, investors expect the European Central Bank to raise interest rates twice more this year, at the September and December interest rate meetings. However, Lagarde said the ECB may not need to adopt aggressive tightening policies this time as it did during the 2022 energy crisis. At a press conference, Lagarde said the conflict in the Middle East remained a major source of uncertainty and she was closely watching the magnitude and duration of the rise in energy prices and how it affected inflation expectations and overall economic dynamics in price and wage settings. Lagarde's term as ECB president was originally scheduled to end in October 2027. But Lagarde said earlier this month that she would not rule out leaving office early to participate in next year's French presidential election to replace current President Macron.

← Back to archive