ECB halts rate cuts amid trade uncertainty

The European Central Bank (ECB) kept interest rates unchanged during its July meeting, effectively signaling the end of its current easing cycle after eight consecutive cuts that brought borrowing costs to their lowest levels since November 2022.

The main refinancing rate remains at 2.15%, while the deposit facility rate holds steady at 2.0%.

This marks a shift in policy tone, with policymakers adopting a cautious, wait-and-see stance as they assess the effects of previous monetary actions on the eurozone economy. The decision comes amid heightened uncertainty in global trade, particularly due to potential new tariffs from the United States, which could dampen export demand and pose risks to both economic growth and inflation dynamics in the region.

In addition, the ECB’s move was underpinned by the recent moderation in inflation, which eased to the central bank’s 2% target in June for the first time in nearly three years. While this milestone supports the case for holding rates steady, officials emphasized that it is too early to declare victory over inflation pressures, especially given persistent core inflation and potential supply-side shocks.

The ECB reaffirmed its commitment to a data-dependent approach, indicating that future decisions will hinge on incoming economic indicators, particularly wage growth, consumer spending patterns, and geopolitical developments. Markets now turn their attention to the ECB's September meeting for any hints of a potential shift toward tightening or further confirmation of a prolonged pause.