ECB July meeting: A Higher Bar for Another Rate Cut, But Not Off the Table

At today’s meeting, the ECB Governing Council decided to keep its three key interest rates unchanged at 2.00%, 2.15% and 2.40% for t he interest rates on the deposit facility, the main refinancing operations and the marginal lending facility respectively . The decision – widely expected – was unanimous . The ECB mentioned that the recent economic information was in line with its baseline scenario, so with the economy being resilient overall in a challenging global environment , while d omestic price pressures and wage grow th eased more slowly , partly reflecting the ongoing impact from past interest rate cuts. Mentioning that the Eurosystem will no longer reinvest the principal payments from maturing securities in t he APP and PEPP portfolios , the ECB also stressed that “ the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries ” . Assessment of the Economic Outlook Broadly Unchanged From June Meeting During the press conference, President Lagarde reiterated to a large extent the economic assessment of the Governing Council in last June meeting. In particular, she stressed that: “ The robust labour market, rising real incomes and solid private sector balance sheets continue to support consumption. Unemployment stood at 6.3 per cent in May, close to its lowest level since the introduction of the euro. Easier financing conditions are underpinning domestic demand, including in the housing market. Over time, higher public investment in defence and infrastructure should also support growth ”. At the same time, she underlined that “ risks to economic growth remain tilted to the downside […] ” and that “ At the same time, higher actual and expected tariffs, the stronger euro and persistent geopolitical uncertainty are making firms more hesitant to invest ”. A Less Informative Q&A Session Than Expected During the Q&A session, the discussion primarily focused on (a) US tariffs; (b) exchange rate; and (c) liquidity position. On the US tariffs, President Lagarde refused to pre-commit to any decision in the near future , recalling the data-dependency and meeting-by-meeting approach. In particular, she repeated the assessment of the Governing Council in June that “ t he environment remains exceptionally uncertain, especially because of trade disputes ”, so that an “ on-hold ” approach ahead of US-Europe negotiations is the best approach. All in all, President highlighted that the Governing Council considered the euro area to be “ well-positioned ” and “in good place” to navigate through turbulent waters .