The ECB leaves its deposit rate unchanged, but warns of the inflationary risks linked to the surge in oil prices in a tense geopolitical context.
The Governing Council of the European Central Bank (ECB) opted for the status quo this Thursday. After the June increase, the deposit rate, which serves as a benchmark for the market, remains set at 2.25%. This decision comes as the price of Brent oil crossed the $100 mark, fueling fears of a new inflationary surge in the euro zone.
The Governing Council had to decide in a particularly turbulent geopolitical environment. The war in the Middle East has significantly increased uncertainty surrounding the outlook, creating upside risks to inflation and downside risks to economic growth. “The decision was unanimous, even if it is true that some governors questioned the advisability of a rate increase,” conceded Christine Lagarde.
Concern about soaring energy prices
The president of the institution declared herself worried about the new surge in energy prices. “The energy shock could intensify, and its effects on prices and wages could be stronger than expected,” she said.
The ECB justifies maintaining its key rate by the absence of a second round effect on inflation at this stage. The central bank particularly scrutinizes wage demands, which spread price increases throughout the economy. “The future development of the situation will depend on the possible appearance of more marked signs of second round effects,” confirms Brian Coulton, Fitch’s chief economist.
For now, nominal wage growth remains weak – just 2.3% to 2.5% according to ECB and Indeed indicators – and unit profit growth has fallen sharply since 2023.
Markets are betting on a rate hike at the next meeting in September. Everything will depend on inflation.
