The European Central Bank (ECB) has stood its ground, opting to maintain its benchmark interest rates at their current record levels, despite fresh data indicating a continued slowdown in Eurozone inflation.
A Cautious Hold Amid Economic Uncertainty
Meeting in Frankfurt, the ECB's Governing Council decided to keep the key deposit rate unchanged at 4.0%—its highest level since the launch of the euro currency. The main refinancing rate remains at 4.5%.
This decision comes as the latest figures from the EU's statistics agency, Eurostat, revealed that annual inflation in the Eurozone dipped to 2.5% in June. This figure moves closer to the bank's coveted 2% target, down from 2.6% in May.
Behind the Numbers: Core Inflation Persists
While headline inflation shows promising signs of cooling, policymakers remain vigilant. The core inflation rate, which strips out the volatile costs of energy, food, alcohol, and tobacco, held steady at 2.9%. This persistent core figure suggests underlying price pressures are still present within the economy, justifying the bank's cautious stance.
The ECB stated: "Although inflation has eased over the past year, it is likely to remain above target well into next year." The bank emphasised it will continue to follow a "data-dependent and meeting-by-meeting approach" to determining the appropriate duration for restrictive policy.
Market Reactions and Global Context
The ECB's decision to hold rates aligns it with other major central banks, including the US Federal Reserve, in a coordinated effort to tame inflation without triggering a deep recession. Financial markets reacted with measured optimism, though analysts warn the path to lower rates may be longer than initially hoped.
Investors and economists will now scrutinise every piece of upcoming economic data, searching for signals on when the ECB might feel confident enough to begin its long-awaited easing cycle. For now, the message from Frankfurt is clear: the fight against inflation is not yet over.
