ECB Holds Interest Rates, Energy Inflation a Threat
The European Central Bank maintained its benchmark interest rate at its latest meeting on Thursday (July 23rd), with the deposit rate remaining at 2.25%. This decision met market and economist expectations and was unanimously agreed upon by policymakers.
Despite the rate hold, hawkish signals remain strong. ECB President Christine Lagarde said some officials had discussed the possibility of an immediate interest rate hike, rather than waiting until September, to ensure inflation remains under control.
The ECB reiterated that it would not commit to a specific policy path. The central bank would make decisions from one meeting to the next, while assessing developments in inflation, energy, and the eurozone economy.
The bond market remained relatively stable following the decision. The yield on the 10-year German Bund was around 3.19%, after previously touching 3.21%, its highest level since 2011. The increase in yield was triggered by inflation concerns after oil and gas prices surged again.
The euro remained weak by around 0.2% against the US dollar, hovering around US$1.1390. The swap market still expects a 25 basis point interest rate hike in September to be almost certain, with the likelihood of another increase before the end of the year also increasing.
Impacting the market, the ECB's continued hawkish stance could stem the euro's weakening, but rising energy prices remain a significant risk to the European economy. If Brent nears US$100 and inflation rises again, the ECB could be forced to raise interest rates again. This could potentially depress European stocks, raise bond yields, and make the euro volatile against the US dollar. (arl)
Source: Newsmaker.id
