ECB Holds Interest Rates Amid Ongoing Energy Shock Uncertainty

The European Central Bank (ECB) has kept its three key interest rates unchanged in its latest decision, citing ongoing uncertainty from the energy shock caused by the conflict in the Middle East. Despite some improvement in economic activity in the second quarter of 2026, growth is expected to remain modest in the near term due to the energy shock and related uncertainties.

The ECB noted that inflation declined to 2.8% in June 2026 from 3.2% in May, but warned that the full effects of the energy shock have yet to play out. Energy price inflation remains high at 8.5%, while food price inflation fell to 1.5%. The Governing Council is closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects.

The ECB also reiterated its call for urgent action to strengthen the euro area economy while maintaining sound public finances. It highlighted the importance of simplifying and harmonising rules across the EU's Single Market, accelerating the energy transition, and completing the savings and investments union.