ECB Holds Key Interest Rates Steady as It Watches Energy Shock

The European Central Bank left its three key interest rates unchanged following its July meeting in Frankfurt, opting to hold as it assesses the inflationary fallout from higher energy prices tied to the conflict in the Middle East. The Governing Council said the outlook for energy prices, while highly volatile, currently stood close to the baseline of its June staff projections but well above pre-conflict levels, and warned that the full inflationary impact of the shock had yet to play out. Policymakers said they were closely watching the intensity and duration of the energy shock along with its indirect and second-round effects on prices, and reaffirmed a commitment to setting policy so that inflation stabilises at the 2% target over the medium term. The decision keeps the deposit rate steady after a period of adjustment and reflects a cautious, data-dependent stance amid elevated uncertainty. Euro-area growth has been subdued, weighed down by high energy costs, though officials expect activity to strengthen in the second half of the year if energy prices ease as anticipated. President Christine Lagarde stressed the council remains ready to act as the outlook evolves.