The Zhitong Finance App learned that the ECB kept interest rates unchanged on Thursday and waited for subsequent economic data to determine whether the upward pressure on prices caused by the Iran conflict required further tightening of monetary policy. The ECB kept the deposit mechanism interest rate unchanged at 2.25%, in line with market expectations. Economists and investors expect that after the June rate hike, the ECB may raise interest rates by another 25 basis points in September. The ECB, on the other hand, reiterated that it will not set a policy path, but will act meeting by meeting based on the latest economic data.
The ECB said in a statement on Thursday: “Uncertainty is still very high, and the impact of inflation caused by the energy shock is not yet fully evident. Therefore, the Management Committee is closely monitoring the intensity and duration of the impact, as well as its indirect and secondary conduction effects.”
Policymakers have reiterated that the ECB has sufficient policy tools to deal with the current complex situation.
After the interest rate decision was announced, the price of Eurobonds did not change much, and the 10-year German Treasury yield rose 2 basis points to 3.19%. Previously, as soaring oil and gas prices heightened concerns about inflation, the yield hit 3.21%, the highest level since 2011.
Market expectations for future interest rate trends have also remained stable. The swap transaction shows that the ECB's interest rate hike of 25 basis points in September is almost a foregone conclusion, while the possibility of another rate hike before the end of the year is almost 100%. EUR/USD maintained its earlier decline. The latest decline was 0.2% to $1.1392.
In June of this year, the ECB raised its benchmark interest rate by 25 basis points, for the first time in nearly three years. This move also made the bank the first major central bank in the G7 to take measures to raise interest rates since the outbreak of the war in Iran. The interest rate hike has also triggered discussions in the market about whether the ECB will repeat the mistakes of the 2008 and 2011 rate hikes. At that time, the ECB tightened monetary policy too soon, causing economic recovery to be interrupted.
The European Central Bank warned in June that inflation caused by the war in Iran had spread beyond the energy sector, but the overall economy remained resilient. Today, policymakers are weighing whether further austerity measures are needed.
Some ECB officials believed in early July that the US-Iran peace talks might limit the impact of the war on consumer prices in the Eurozone. However, as the tension in the Strait of Hormuz escalates again, global oil prices are once again approaching $100 per barrel, and concerns about inflation are once again heating up.
ECB President Lagarde held a press conference after Thursday's interest rate meeting. She said that energy inflation is likely to keep inflation well above target levels until the first half of 2027, and conflict is a major source of uncertainty. Lagarde once again reiterated that no forward-looking guidance was provided.
The market generally believes that if interest rate hikes are necessary in the future, the September interest rate meeting will be an appropriate window to implement this initiative. At that time, more reports such as inflation data and corporate sentiment surveys will be released to provide a basis for policy adjustments.