ECB Keeps Interest Rates Unchanged for Now

On Thursday, the European Central Bank (ECB) left its key interest rates unchanged but left the door open to a possible further increase in September. The reason is a new surge in oil prices, once again nearing $100 per barrel, and natural gas prices linked to the resumption of hostilities between the US and Iran, which threatens to keep inflation above the 2% target, at around 3% in the coming months.

In its statement, the ECB emphasized that uncertainty remains high and that it is closely assessing the secondary effects of the energy shock on the price spiral.

Although investors expect monetary policy to tighten in the fall and throughout the coming year based on energy price trends, economic fundamentals currently point to a wait-and-see approach. Wage growth in the eurozone is slowing, the labor market, especially in Germany, remains weak, and consumer inflation expectations are not rising.

Persistent trade tensions and weaker demand are thus dampening these secondary effects, although the summer heatwave and low river levels in Europe also remain a risk to food prices and logistics. As ECB president, Christine Lagarde is therefore likely to attempt a balancing act.

(Reuters, Max)