Outlook “in line” with June, ECB leaves interest rates unchanged

Brussels – No improvement, no deterioration either. The economic trend remains unchanged, and therefore, there is no reason to change things. That is why the Board of the European Central Bank confirms expectations and leaves interest rates unchanged at the levels decreed with the last cut in early June. 

The interest rate on deposits with the central bank thus remains at 2 per cent, the rate on the main refinancing operations remains at 2.15 per cent, and the rate on the marginal lending operations is confirmed at 2.40 per cent. 

“Inflation is currently equal to our 2 per cent target in the medium term,” explains ECB President Christine Lagarde. Moreover, “the new information is broadly in line with the Governing Council’s previous assessment of the inflation outlook.” There are no conditions for easing, but also no conditions for choosing the path of new restrictive policies. Of course, “the outlook remains exceptionally uncertain,” not least because of the unknowns associated with a still ongoing EU-US tariff negotiations, and this induces caution.

ECB President Christine Lagarde [Frankfurt, 24 July 2025]

A data-driven approach and time-by-time decisions, without a predetermined path, will continue to guide the ECB’s operations. This is what has been done so far, and what will continue to be done: Lagarde reiterates this point once again at the press conference at the end of the meeting. Yes, she admits, uncertainties remain “above all” due to the trade disputes, and in this sense, reaching an understanding between the US and the EU can contribute to greater confidence, less turbulence, and also create the conditions for new interest rate cuts from September. “If trade issues were to be resolved quickly and in an orderly manner, would this lead to different movements? We do not exclude anything.”

Tariffs, defence, and climate: uncertainty factors for inflation and the economy

Trade matters, and a lot. Lagarde emphasises the uncertainties associated with free trade and its resulting repercussions. “The inflation outlook is more uncertain than usual, due to the volatile global trade policy environment,” she acknowledges. Specifically, the inflation could be lower if higher tariffs lead to lower demand for euro area exports and cause countries with overcapacity to divert their exports to the euro area. Translated: an influx of Chinese products in response to US tariffs could work as a counterbalance. In this counterbalance scenario, the ECB president continues, “trade tensions could lead to increased volatility and risk aversion in financial markets, which would weigh on domestic demand and, consequently, also reduce inflation.” 

On the contrary, inflation could rise again if global supply chains fragment, a situation that would lead to higher import prices. Added to this is the EU’s defence policy. Yes, it is true, Lagarde acknowledges, that “‘it could support growth,” but it will depend on how it is spent. “A rise in defence spending could also increase inflation in the medium term,” warns the European Central Bank president, recalling a concern that is not new to the twelve-star security agenda. Then there is climate change: “The extreme weather events and, more generally, the ongoing climate crisis could raise food prices more than expected.”