| Consensus | Consensus Range | Actual | Previous | |
| Refi Rate Change | 0bp | 0bp to 0bp | 0bp | 25bp |
| Refi Rate Level | 2.40% | 2.40% to 2.40% | 2.40% | 2.40% |
| Deposit Rate Change | 0bp | 0bp to 0bp | 0bp | 25bp |
| Deposit Rate Level | 2.25% | 2.25% to 2.25% | 2.25% | 2.25% |
Highlights
The European Central Bank’s decision to hold its key interest rates unchanged surprises no one. The deposit facility, main refinancing and marginal lending rates remain at 2.25 percent, 2.40 percent and 2.65 percent, respectively. This stance balances two competing risks: renewed inflationary pressures from volatile energy prices following the Middle East conflict and weaker economic activity caused by persistently restrictive financing conditions.
The statement leans hawkish by saying the full inflationary impact of rising energy prices has yet to play out, which suggests some governing council members were arguing for a rate move now. With energy prices spiking again in July, it suggests the ECB may move in September. Energy prices remain above their pre-conflict levels, but the scale and duration of their effect on consumer prices are uncertain. The ECB is therefore particularly concerned about indirect pressures, including higher production, transport and wage costs, which could prolong inflation. Its refusal to commit to a predetermined interest-rate path preserves flexibility should inflation expectations deteriorate.
Meanwhile, the continued reduction of the asset purchase programme and pandemic emergency purchase programme portfolios represents gradual quantitative tightening, reinforcing the restrictive policy stance. However, the transmission protection instrument provides a safeguard against disorderly bond-market movements across euro-area economies. In summary, the decision signals that the ECB is prepared to tolerate slower growth while awaiting clearer evidence that inflation will stabilise sustainably at its 2 percent medium-term target.
Market Consensus Before Announcement
The consensus looks for no rate change but markets will watch closely for any guidance.
Definition
The European Central Bank (ECB) sets monetary policy for all members of the Eurozone. The highest decision-making body is the Governing Council which comprises the six members of the Executive Board and the 20 presidents of member central banks. Policy meetings take place roughly every six weeks but, due to the sheer number of participants, a rotation system has been introduced so that the total number of votes is capped at twenty-one. The benchmark interest rate is the rate on the main refinancing operations (refi rate) which sits between the marginal lending facility rate and deposit rate. The ECB's primary objective is price stability which since July 2021 is based upon a symmetric 2 percent target for the annual inflation rate.