The European Central Bank (ECB) left its key interest rates unchanged at its July meeting, as expected by markets.
The Governing Council did not provide specific guidance on future policy, saying it “does not commit in advance to any particular path for interest rates,” somewhat dampening market expectations that are betting heavily on a rate cut in September.
The deposit rate remained at 3.75%, the refinancing rate at 4.25% and the marginal lending rate at 4.5%. These rates were cut by 25 basis points at their June meeting, marking the first rate cut by the ECB since 2019.
Domestic price pressures, services inflation remains high
Temporary factors pushed some measures of underlying inflation higher in May, but most measures remained stable or declined slightly in June. Frankfurt said the inflationary impact of high wage growth was being mitigated by profits and monetary policy continued to restrict financing conditions.
But “domestic inflation remains high. Wages are still growing at a high rate, making up for previous periods of high inflation,” ECB President Christine Lagarde said.
Services inflation is seen as high and headline inflation is likely to remain above the ECB's target next year.
A data-dependent approach to every meeting
“Risks to economic growth are tilted to the downside. A weakening global economy and intensifying trade tensions between major economies would weigh on euro area growth,” Lagarde said.
The ECB remains determined to ensure that inflation returns to its 2 percent medium-term objective in a timely manner. European policymakers said they would use a data-dependent, meeting-by-meeting approach and keep policy rates at tight enough levels for as long as necessary to achieve this goal.
Market reaction
The euro was little changed against the U.S. dollar at 1.0930, tracked by Invesco CurrencyShares Euro Currency Trust FXE.
European stock markets rose on Thursday, with the Euro STOXX 50 index, tracked by the SPDR DJ Euro STOXX 50 ETF FEZ, rising 0.7%. France was the best performer among major European countries, with the CAC 40 index, tracked by the iShares MSCI France Index Fund EWQ, rising 0.9%.
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