European Central Bank (ECB) Monetary Policy Decision summary

Monetary policy decision and outlook

• Key ECB interest rates were kept unchanged, with the deposit facility at 2.25%, main refinancing at 2.40%, and marginal lending at 2.65%, amid ongoing uncertainty and volatile energy prices that remain above pre-conflict levels.

• Policy remains data-dependent, with decisions made meeting-by-meeting based on inflation outlook, risks, and monetary policy transmission, and no pre-commitment to a specific rate path.

• The ECB is committed to stabilizing inflation at the 2% medium-term target and stands ready to adjust instruments as needed.

• Unanimous decision to hold rates, though some governors considered a hike; focus remains on incoming data before the September meeting.

• The burden of proof for future rate changes rests on data, not on advocates for or against hikes.

Economic and inflation developments

• Inflation declined to 2.8% in June from 3.2% in May, with energy and food price inflation also easing.

• Underlying inflation remains contained, and wage growth is moderating, with no evidence of second-round effects so far.

• Most longer-term inflation expectations are around 2%, but inflation is expected to stay above target into the first half of 2027 due to persistent energy shocks.

• Economic activity shows modest improvement, with services recovering and manufacturing supported by stock-building and defense spending.

• Growth is expected to remain modest in the near term, weighed down by energy shocks and uncertainty, but medium-term drivers like digital investment and exports remain intact.

Risks and scenario analysis

• Downside risks to growth include renewed energy supply disruptions, tighter credit, and global trade frictions.

• Upside risks to inflation stem from potential intensification of the energy shock and its indirect effects on prices and wages.

• Extreme weather and climate crises could further drive up food prices.

• The likelihood of a mild scenario is low due to high uncertainty and rapid changes in the conflict and energy markets.

• Scenario analysis and agility in policy response are emphasized to adapt to fast-changing conditions.