ECB Holds Rates as Energy Shock Lingers

The European Central Bank (ECB) has decided to hold interest rates at 2.25% after its governing council meeting on Thursday, keeping a close eye on the lingering energy shock from the Middle East conflict.

The bank is monitoring the intensity and duration of the shock, as well as its indirect and second-round effects, which could feed through to household bills and headline inflation in the second half of the year.

This decision comes just six weeks after the ECB raised rates for the first time in nearly three years in response to a war-driven energy shock that pushed inflation to its highest since September 2023. According to the central bank, the outlook for energy prices currently stands close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict.

The pause also follows confirmation last week that eurozone inflation eased to 2.8% in June from May's 3.2%, the first decline this year, with core price growth slowing to 2.4%. ECB President Christine Lagarde has been careful to keep the door open for further rate hikes, insisting that June's move was not an 'insurance hike' but a response to a genuine inflation problem.