Following the June rate cut, the European Central Bank (ECB) keeps interest rates on hold, as widely expected by market participants.
The ECB announced its latest monetary policy decision at its 18 July meeting and has kept its key interest rates the same.
The interest rate on the main refinancing operations, which is the rate banks pay when they borrow money from the ECB for one week, was kept at 4.25%.
The rate on the deposit facility, which banks can use to make overnight deposits with the Eurosystem, was held at 3.75% – and the rate on the marginal lending facility, which offers overnight credit to banks from the Eurosystem, remains at 4.50%.
Factors supporting the ECB’s decision to hold rates steady
The emphasis remained on ensuring inflation returns to its 2% medium-term target in a “timely manner”, the ECB said in a statement after announcing the decision.
“It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim,” it said.
Policymakers have emphasised that the June cut does not signal a linear reduction in interest rates. Moreover, there have been no significant data developments since June with members broadly in favour of waiting for September’s new quarterly macroeconomic projections.
The euro area annual inflation rate was 2.5% in June 2024, down from 2.6% in May. A year earlier, the rate was 5.5%. European Union annual inflation was 2.6% in June 2024, down from 2.7% in May, according to data published by Eurostat on 17 July.
“The lowest annual rates were registered in Finland (0.5%), Italy (0.9%) and Lithuania (1.0%). The highest annual rates were recorded in Belgium (5.4%), Romania (5.3%), Spain and Hungary (both 3.6%). Compared with May 2024, annual inflation fell in seventeen Member States, remained stable in one and rose in nine.
“In June 2024, the highest contribution to the annual euro area inflation rate came from services (+1.84 percentage points, pp), followed by food, alcohol & tobacco (+0.48 pp), non-energy industrial goods (+0.17 pp) and energy (+0.02 pp),” Eurostat reported.
Market participants see another move in September as almost certain, with interest rate futures showing an implied 80% chance of this event.
