The ECB has maintained current interest rates while monitoring the inflationary impact of the ongoing conflict between the US and Iran.

The European Central Bank announced on Thursday that it will keep interest rates unchanged following a previous rate hike last month. The decision comes as the bank monitors the economic consequences of the conflict between the US and Iran, which has contributed to oil prices briefly exceeding $100 per barrel.

Economic Outlook and Inflation

The ECB stated that while energy price projections remain consistent with June estimates, they stay significantly higher than levels seen before the Middle East conflict. The bank emphasized that the full inflationary impact of the energy shock is still unfolding, noting that indirect and second-round effects on prices and wages remain a concern. ECB President Christine Lagarde confirmed that some governors considered a rate increase during the meeting, but the bank opted for a data-dependent approach for future policy decisions. Despite inflationary pressures, the bank highlighted positive data regarding employment figures, industrial activity, and European defense spending plans. Eurozone inflation decreased to 2.8% in June, down from 3.2% in May, though energy inflation remained elevated at 8.5% and 10.8% during those respective months.

Current Monetary Policy

The ECB’s deposit facility rate is currently 2.25%, with the main refinancing operations rate at 2.40% and the marginal lending facility at 2.65%. These figures represent a decrease from the 4.5% peak reached in 2023 during the inflationary period following the COVID-19 pandemic and the invasion of Ukraine. The bank maintains its commitment to a 2% inflation target in the medium term.