Home›Bonds & Rates›Central Banks›ECB holds key interest rates, says energy shock impact…

ECB holds key interest rates, says energy shock impact not fully seen

In May, unemployment in the euro area was 6.2%, while job postings have continued to decline and the ECB expects modest near-term growth.

Reported · Written up by our desk · Central Banks

The European Central Bank decided to keep its three key interest rates unchanged, citing an uncertain inflation outlook and saying the full inflationary impact of the energy shock has yet to play out. ECB officials said energy prices are highly volatile, currently near the June Eurosystem baseline, but that uncertainty remains high and they are monitoring both the shock’s direct effects and its indirect, second-round effects.

In its statement, the ECB reiterated it is committed to setting monetary policy to stabilize inflation at its 2% target in the medium term, using a data-dependent, meeting-by-meeting approach. The central bank said it is not pre-committing to a particular rate path, and that interest rate decisions will reflect assessments of the inflation outlook and risks based on incoming economic and financial data, inflation dynamics, and the strength of monetary policy transmission.

The ECB said recent information points to some improvement in economic activity in the second quarter, even as the Middle East conflict remained a headwind. It noted that surveys suggest services activity partly recovered after weakening immediately after the energy shock, with digital services supported by AI-related activity, while manufacturing held up as firms built inventories to manage supply chain risks and higher defence spending.

On labor conditions, the ECB reported unemployment was 6.2% in May, near historical lows, but added that job postings continued to decline and firms and households expect a weaker labour market than before the conflict. The ECB said forward-looking indicators point to modest near-term growth weighed down by the energy shock and related uncertainties, while medium-term growth drivers remain intact.

More like this

Sources