ECB Keeps Rates Steady, Eyes Further Hikes Amid Energy Price Volatility

The European Central Bank (ECB) kept borrowing costs steady on Thursday, but left room for further tightening in the coming months. The ECB maintained its deposit rate at 2.25%, citing a widening conflict in the Middle East as a significant concern.

Energy prices have risen again due to the ongoing conflict, which may reignite inflationary pressures. The ECB said it is closely monitoring the situation and its indirect effects on the economy.

The euro fell by 0.28% against the US dollar, trading at $1.1378. Interest-rate sensitive two-year bond yields across the euro area increased slightly, with German two-year bond yields rising around 3 basis points to 2.87%.

Money markets still expect two more rate hikes by year-end, indicating a high likelihood of further tightening in the coming months. Several economists and analysts believe that the ECB will hike rates again in September, potentially to 2.50%, depending on growth and inflation developments.