• Deposit rate 2.25% vs 2.25% prior
• Refinancing rate 2.40% vs 2.40% prior
• Lending rate 2.65% vs 2.65% prior
• The outlook for energy prices, while highly volatile, currently stands close to the baseline of the June Eurosystem staff projections
• The Governing Council is therefore closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects
• The Governing Council is committed to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term.
• Governing Council remains well positioned to navigate the uncertainty caused by the conflict
• It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance
• The Governing Council is not pre-committing to a particular rate path.

The ECB left its three key interest rates unchanged at today’s policy meeting, delivering a decision that was fully priced in and thus generating a limited reaction in the markets.

The Governing Council maintained its wait-and-see approach, reiterating that monetary policy will remain data-dependent and that future decisions will continue to be taken on a meeting-by-meeting basis. Policymakers once again stressed that they are not pre-committing to any particular interest rate path.

The statement acknowledged that energy prices remain highly volatile following the recent escalation of tensions in the Middle East. However, the ECB noted that current energy price assumptions remain broadly in line with the baseline projections published in June, despite sitting well above pre-conflict levels. The Governing Council added that uncertainty remains elevated and that the full inflationary effects of the energy shock, including indirect and second-round effects, have yet to materialise, warranting close monitoring in the months ahead.

Despite highlighting geopolitical risks, the overall tone of the statement was largely unchanged. The ECB reiterated its commitment to ensuring that inflation returns sustainably to its 2% medium-term target while emphasizing that incoming economic data, underlying inflation dynamics, and the strength of monetary policy transmission will determine future policy decisions.

Markets treated the announcement as a non-event. Money market pricing for future ECB rate moves remained virtually unchanged following the decision, reflecting the absence of any meaningful shift in the central bank’s policy outlook. The euro also saw only limited volatility as traders found little in the statement to justify a reassessment of interest rate expectations.

Attention now turns to President Lagarde’s press conference, where traders will be looking for any additional insight. The risks for the euro remain skewed to the downside. A pushback against the market pricing would trigger a selloff, while a pledge to tighten more than expected will likely lead to a short-term rally. The most likely scenario is that Lagarde keeps the tightening bias intact but doesn’t pre-commit to anything. The most likely scenario is that we get the usual post-meeting media “leak” signalling a rate hike in September if inflation data were to surprise to the upside.