The European Central Bank has made a decision on interest rates in the eurozone

The decision was in line with the expectations of Bloomberg survey respondents. During the previous meeting, the ECB cut interest rates by 25 basis points. The central bank's last interest rate hike eurozone made in September 2023. In the current tightening cycle, the ECB raised interest rates by 450 bps.

“The Governing Council today decided to leave the three key ECB interest rates unchanged. Incoming information is broadly consistent with the Governing Council's earlier assessment of the medium-term inflation outlook. While some measures of underlying inflation increased in May due to one-off factors, most measures remained unchanged or declined in June. As expected, earnings cushioned the pro-inflationary impact of high wage growth. Financing conditions remain tight under the influence of monetary policy. At the same time, domestic price pressures remain high, services price inflation is elevated and headline inflation is likely to remain above target for a significant part of next year,” the statement reads.

“The Governing Council remains committed to ensuring that inflation returns rapidly to its medium-term target of 2 percent. Key interest rates will remain sufficiently restrictive for as long as necessary to achieve this goal. The Governing Council will continue to determine the appropriate degree and duration of restrictiveness on an evidence-based basis and on an ongoing basis from meeting to meeting. In particular, the Governing Council's decisions on interest rates will reflect its assessment of the inflation outlook in the light of incoming economic and financial data, underlying inflation dynamics and the strength of the monetary policy transmission mechanism. The Governing Council does not commit to a specific path for interest rates,” it added.

The eurozone central bank reiterated that it stands ready to adapt all its monetary policy tools to the changing macroeconomic environment.

“The Governing Council stands ready to adjust all instruments within its mandate as appropriate to return inflation to its 2% target over the medium term and maintain a smooth transmission of monetary policy. In addition, a transmission backstop is available to counter unjustified, uncontrolled market dynamics that pose a significant risk to the transmission of monetary policy in all euro area countries, allowing the Governing Council to fulfil its price stability mandate more effectively,” the ECB said in a statement. The ECB said it would monitor the impact of the TLTRO programme on the monetary policy stance.

“As banks repay the amounts borrowed under targeted longer-term refinancing operations, the Governing Council will regularly assess how targeted lending operations and their ongoing repayments contribute to the monetary policy stance,” it said.

After the decision was announced euro exchange rate weakens by 0.05 percent against the dollar to 1.0931. The yield on 10-year Bunds rises by 3 basis points to 2.45 percent.

The next ECB meeting will be held on 11-12 September. The latest quarterly macroeconomic projections will be presented after the meeting.