European Central Bank holds interest rates، says domestic price pressures ‘still high’

The European Central Bank left interest rates unchanged on Thursday، after implementing a cut in June.

“Monetary policy is keeping financing conditions restrictive. At the same time، domestic price pressures are still high، services inflation is elevated and headline inflation is likely to remain above the target well into next year،” the ECB’s Governing Council said in a statement.

The decision — which keeps the key interest rate at 3.75% — was widely expected amid ongoing concern over inflationary pressures، particularly from the labor market.

Inflation dipped

Euro zone headline inflation dipped to 2.5% in June from 2.6% previously، but the core print — excluding the volatile components of energy and food — came in above a consensus forecast، holding steady at 2.9%.

Analysts expected the central bank to wait for more data across wages، economic growth and productivity before easing monetary policy further.

The ECB cited the inflation outlook، the dynamics of underlying inflation and the strength of monetary policy transmission as the reasons behind trimming rates in June — in the bank’s first such cut since 2019.

In the July meeting statement released Thursday، the Governing Council said it would continue to monitor those areas، and that it was “not pre-committing to a particular rate path.”

However، market pricing suggests firm expectations for two more 25 basis point cuts this year، in September and December، with a pause during the central bank’s October meeting.