As expected, the European Central Bank kept its benchmark interest rate unchanged in July, marking a pause in its aggressive easing cycle as inflation reached the bank’s 2% medium-term target.
With deposit rates staying at 2.00%, main refinancing operations at 2.15%, and marginal lending facility at 2.40%, the ECB signaled increasing confidence in its monetary policy stance while maintaining a data-dependent approach amid persistent global uncertainties.
Key Takeaways
- Rates held steady: ECB maintained all three key interest rates unchanged, ending seven consecutive 25bp cuts totaling 200bp since September 2023
- Inflation at target: Headline inflation currently sits at the ECB’s 2% medium-term target, with domestic price pressures continuing to ease
- Economic resilience: Eurozone economy has proven resilient overall despite challenging global conditions, partly reflecting past interest rate cuts
- Trade uncertainty persists: Environment remains exceptionally uncertain, particularly due to ongoing trade disputes and geopolitical tensions
- Data-dependent stance: ECB will follow meeting-by-meeting approach, focusing on inflation outlook, underlying dynamics, and monetary policy transmission strength
- Portfolio unwinding continues: APP and PEPP portfolios declining at measured pace as Eurosystem no longer reinvests principal payments from maturing securities
In its official statement, the Governing Council emphasized that incoming economic information remains “broadly in line” with previous assessments of the inflation outlook. Policymakers highlighted that domestic price pressures have continued to ease, with wages growing more slowly, while the economy has proven resilient despite challenging global conditions.
Link to European Central Bank Statement (July 2025)
During the press conference, ECB President Christine Lagarde reinforced the central bank’s cautious stance, emphasizing that the bank “remains data-dependent and follows a meeting-by-meeting approach, focusing on the inflation outlook and risks surrounding it, dynamics of underlying inflation and the strength of monetary policy transmission.”
When questioned about the stronger euro and potential inflation undershooting risks, Lagarde downplayed concerns by noting that the ECB’s June staff projections had already anticipated minor inflation undershooting in coming months.
She stressed that “a minor inflation undershooting did not pose a problem as it was the medium-term outlook that mattered for monetary policy.” Regarding exchange rate questions, Lagarde reiterated the ECB’s standard position that it has no exchange rate target and only considers the euro as part of the monetary transmission mechanism.
Link to ECB Press Conference (July 2025)
Market Reactions
Euro vs. Major Currencies: 5-min
Overlay of EUR vs. Major Currencies Chart by TradingView
The euro, which had been cruising slightly lower against some of its peers after the flash PMI releases earlier in the session, turned lower against commodity currencies and the U.S. dollar while holding steady versus CHF and JPY after the ECB announcement.
ECB head Lagarde’s slightly optimistic remarks triggered a broad rally for the shared currency a few minutes into the press conference. EUR/JPY led gains with a 0.43% advance a few hours after the presser, followed by EUR/GBP with a 0.40% win.
EUR/USD, however, pared its post-presser gains before the U.S. session opened, likely reflecting, likely reflecting dollar strength amid persistent U.S. trade policy uncertainties.
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