ECB Keeps Rates Unchanged, As Expected

As expected by pretty much everyone, the ECB kept its three key ECB interest rates unchanged this morning in a decision that was telegraphed well in advance. Inflation is currently at the 2% medium-term target. Data has been in line with earlier assessments of the inflation outlook, it said in the statement adding that “domestic price pressures have continued to ease, with wages growing more slowly”.

The economy has so far proven resilient overall in a challenging global environment. “At the same time, the environment remains exceptionally uncertain, especially because of trade disputes”. The ECB reinterated it is determined to ensure inflation stabilises at its 2% target in the medium term; it said it is not pre-committing to a particular rate path.

Here are the highlights from the statement:

• Incoming information is broadly in line with previous assessment of inflation outlook
• Domestic price pressures have continued to ease, with wages growing more slowly
• Economy has so far proven resilient overall in a challenging global environment
• Environment remains exceptionally uncertain, especially because of trade disputes

Policy Stance

• Will follow a data-dependent and meeting-by-meeting approach to determining appropriate monetary policy stance
• Rate decisions will be based on its assessment of inflation outlook and risks surrounding it, in light of incoming economic and financial data, as well as dynamics of underlying inflation and strength of monetary policy transmission
• Is not pre-committing to a particular rate path
• Looking at the market's kneejerk reaction, there was no sustained moves in either EUR or EGBs, confirming once again how expected the announcement was.

Futures ECB Pricing

• Sep -8.5bps (prev. -8.5bps)
• Oct -12.6bps (prev. -13.6bps)
• Dec -20.5bps (prev. -21,9bps)
• Mar'25 -25.7bps (prev. -26.8bps)
• Dec'26 -19.1bps (prev. -19.8bps)

Commenting on the decision, Newsquawk notes that as expected. ECB maintained policy settings, acknowledged the continued easing of domestic price pressures and slower wage growth, while highlighting that the environment is “exceptionally uncertain” given trade disputes. No mention of the EUR. Forward guidance is limited to the usual data-dependent and meeting-by-meeting approach, with assessments based on the inflation outlook, risks to it, the dynamics of underlying inflation, and the strength of policy transmission.

From Lagarde, any further forward guidance will be keenly sought, commentary heavily scrutinized, though she is unlikely to provide anything specific at this stage; particularly given the very fluid tariff situation, as evidenced by overnight developments. Elsewhere, any commentary on the EUR given its continued strength. As a reminder, any commentary on it would likely be to stem much more EUR strength (recall recent remarks from de Guindos around 1.20), and as such could be taken in a dovish fashion.