The European Central Bank left interest rates unchanged in July but indicated another hike remains likely at its September meeting, according to minutes released on Thursday.
ECB policymakers described the July decision as a temporary pause in the tightening cycle rather than an end to rate increases. The central bank kept its benchmark rates steady at the July 22–23 meeting, following a 25-basis-point increase in June that marked its first hike in nearly three years.
Minutes from the meeting showed officials saw a need to maintain optionality amid persistent inflation risks. "While decisions remained data-dependent, another rate hike would likely be necessary unless the inflation outlook improved significantly," the minutes stated. Policymakers also emphasized that the pause should not be interpreted as the conclusion of the tightening cycle.
Inflation remained elevated near 3% in July, while banks accelerated corporate lending at the fastest pace in more than three years, with loans rising 4.4% from the prior month. The ECB noted geopolitical risks, including the impact of the Iran war, as a potential driver of future energy price volatility that could feed into broader inflation.
The central bank’s next policy meeting is scheduled for September 9–10, when policymakers indicated they were prepared to raise the deposit facility rate to 2.50% from 2.25% if conditions warrant. The decision will depend on incoming economic data and inflation trends.
