Investing.com – The European Central Bank kept interest rates unchanged on Thursday, as was widely expected, following a rate cut at its last meeting.
The bank kept its benchmark deposit rate at 3.75% after lowering it from a record 4% in June. The interest rate on its main refinancing operations also remained at 4.25% and its marginal lending rate remained at 4.50%.
The lack of movement this month was largely expected, with many officials arguing that while price pressures are easing as expected, risks remain and more data is needed before further rate cuts become a reality.
The market has priced in two more rate cuts this year, with the September meeting currently seen as the most likely time for the next move.
The ECB's main concern is that domestic prices, particularly services prices, are trending sideways and relatively rapid wage growth could keep inflation above its 2% medium-term target.
But the economy remains relatively weak and a series of surveys have shown sluggish growth, easing concerns about future price pressures.
Analysts at Evercore ISI said in a note that the July statement did not specify whether the ECB would cut rates for a second time in September after its first in June, adding that “the Governing Council did not commit in advance to a particular interest rate direction.”
However, it said it was “less dovish/hawkish than many had feared, given the recent high level of services inflation,” and that incoming information “broadly supports” its previous assessment of the medium-term outlook, noting that most measures of underlying inflation “stabilized or declined slightly in June,” wage pressures “have been mitigated by profits,” in line with the ECB's expectations, and policy is “keeping financing conditions restrictive.” However, domestic price pressures “remain elevated,” services inflation is “rising,” and headline inflation is expected to exceed target “well into next year.”
“We interpret the update as consistent with our view that the ECB is expected to cut rates in September, despite concerns about weak services inflation,” Evercore added.
All eyes will now be on ECB President Christine Lagarde to accompany him to the bank for further clues about the central bank's future intentions.