On 23 July 2026, the European Central Bank's Governing Council decided to maintain all three key ECB interest rates at their current levels, pausing after a period of active policy adjustment as it assesses whether inflation is on a sustained path back to target.

Energy Prices and Inflation Outlook

The outlook for energy prices remains highly volatile but currently stands close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict in the Middle East. The Governing Council emphasized that uncertainty remains high and that the full inflationary impact of the energy shock has yet to play out. Accordingly, the Council is closely monitoring the intensity and duration of the shock, along with its indirect and second-round effects—such as wage growth and firms' price-setting behaviour, which can keep inflation elevated even after energy costs plateau.

The Governing Council reaffirmed its commitment to setting monetary policy to ensure that inflation stabilizes at its 2% target over the medium term, the benchmark it uses to maintain price stability for the 20-nation euro area.

Data-Dependent Approach

With this decision, the Governing Council stated it remains well positioned to navigate the uncertainty caused by the conflict. The Council will follow a data-dependent, meeting-by-meeting approach to determining the appropriate monetary policy stance. Interest rate decisions will be based on the Council's assessment of the inflation outlook and surrounding risks, taking into account incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. The Governing Council explicitly stated it is not pre-committing to a particular rate path.

Key ECB Interest Rates

The interest rates will remain unchanged as follows:

• Deposit facility: 2.25%
• Main refinancing operations: 2.40%
• Marginal lending facility: 2.65%

The deposit facility rate, at which banks earn interest on excess reserves parked at the Eurosystem, serves as the ECB's primary lever for steering short-term money market rates and, by extension, borrowing costs across the euro area economy.

Asset Purchase Programmes

The Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios continue to decline at a measured and predictable pace, as the Eurosystem no longer reinvests principal payments from maturing securities. This gradual runoff, sometimes described as passive quantitative tightening, reduces the size of the ECB's balance sheet, which had expanded substantially through bond purchases launched first after the euro area sovereign debt crisis (APP) and then during the COVID-19 pandemic (PEPP).

Readiness to Act

The Governing Council stands ready to adjust all of its instruments within its mandate to ensure inflation stabilizes at its 2% medium-term target and to preserve the smooth functioning of monetary policy transmission. The Transmission Protection Instrument (TPI) remains available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, enabling the Governing Council to more effectively deliver on its price stability mandate.

The ECB President will comment on the considerations underlying these decisions at a press conference scheduled for 14:45 CET today, where markets will look for signals on whether further rate adjustments are under consideration.

Source: ForexLive / InvestingLive