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The Frankfurt-based European Central Bank kept the deposit facility rate, the main interest rate influencing monetary policy, at 2% on Thursday, which is the lowest level in more than two years.
As the economy is performing relatively well and the US trade talks are still underway, analysts were expecting no rush from the European Central Bank (ECB) to lower the benchmark interest rate.
The ECB sets the monetary policy for the eurozone, mainly through three interest rates. The deposit facility is the interest rate banks receive when they deposit money with the central bank overnight.
The interest rate on the main refinancing operations is the rate banks pay when they borrow money from the ECB for one week, while the marginal lfinishing facility is the rate banks pay when they borrow from the ECB overnight.
Both the main refinancing operations and marginal lfinishing facility rates remained unmodifyd at 2.15% and 2.40% respectively on Thursday.
At the ECB’s previous meeting, the bank cut its key interest rates for the eighth time since June 2024, bringing down the key rate to 2%, from a record high of 4%.
While inflation in the eurozone is remaining close to the 2% tarobtain of the central bank, the latest flash estimates display a slight uptick, keeping the bank cautious about how to proceed. According to Eurostat, consumer prices rose by 2% year-on-year in June, up from 1.9% in May. Core inflation — which excludes volatile items such as food and energy — remained steady at 2.3%.
A potential EU-US trade agreement could also fuel inflation in the bloc, therefore, the ECB was expected to hold off cutting rates until the potential implications of the EU-US trade talks become clear.
This is a developing story which we will continue to update as more information becomes available.
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