The European Central Bank (ECB) kept interest rates unchanged as expected on Thursday, but opened the door to another increase in September, as renewed conflict in the Middle East has largely erased any hope of a quick moderation in energy costs.
The ECB raised rates in June and hinted at more to come, but a string of benign data since then – on prices, wages, economic activity and inflation expectations – had made a quick follow-up step less urgent.
The return of oil prices to $100 per barrel as the U.S.-Israeli war on Iran disrupts shipping did stir talk of policy tightening at this month's policy meeting, ECB President Christine Lagarde said, supporting market bets that a rate hike in September is likely.
"There were some governors who asked themselves whether we should not consider a hike; in other words, raising the three interest rates," Lagarde told a news conference. The Governing Council's decision to keep the benchmark deposit rate unchanged at 2.25% was nevertheless unanimous, she said.
The ECB had flagged a hold in the weeks leading up to Thursday's meeting on the premise that energy prices were falling quickly and moving closer to the mildest of three scenarios it set out in March.
