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FinanceECB holds rate at 2.25%, traders price in 25bp September hike
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The European Central Bank (ECB) held its main interest rate unchanged at 2.25% on Thursday, in line with market expectations. However, traders are already anticipating a 0.25% rate hike in September, as ECB President Christine Lagarde warned that renewed Middle East hostilities and a rebound in oil prices pose upside risks to the euro zone inflation outlook. Lagarde stated that inflation is expected to remain 'well above target' until the first half of 2027, driven by potential further disruption to energy supplies. The ECB stands ready to adjust rates to ensure inflation stabilizes toward its 2% medium-term target. Eurozone inflation eased from 3.2% in May to 2.8% in June. Analysts from Aviva Investors and Quilter Cheviot noted that the market expects the ECB to remain in a rate-raising mood for the rest of the year, with the pace depending on global developments.
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Christine Lagarde, president of the European Central Bank (ECB), during a rates decision news conference in Frankfurt, Germany, on Thursday, June 11, 2026. Alex Kraus | Bloomberg | Getty Images
The European Central Bank (ECB) voted on Thursday to leave its main interest rate unchanged at 2.25%, a move broadly in line with market expectations.
However, traders are already anticipating a rate hike in September, as ECB President Christine Lagarde warned that renewed Middle East hostilities and the resulting rebound in oil prices pose upside risks to the euro zone inflation outlook.
Key Takeaways
- The ECB held rates at 2.25% on Thursday.
- The bank anticipates inflation to remain "well above target" until the first half of 2027.
- Traders are already pricing in a rate hike in September.
Inflation and Energy Concerns
The ECB stated it stands ready to adjust all of its interest rates to ensure inflation stabilizes toward its 2% medium-term target. Euro zone inflation eased from 3.2% in May to 2.8% last month.
In a press conference following the decision, Lagarde said the bank expects inflation to remain "well above target" until the first half of 2027.
"Renewed disruption of energy supplies could increase energy prices further and for longer than expected," she told reporters.
"The longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects," Lagarde added.
Market Expectations
Ed Hutchings, head of developed market rates at Aviva Investors, said traders now expect a 0.25% hike in September.
"Inflation expectations remain elevated and if sustained further, even tighter policy may well be needed," Hutchings said.
The hold follows the ECB's quarter-point hike in June — its first rate rise since 2023 — as inflationary pressures caused by the Iran war energy shock began to weigh on Europe's economy.
Richard Carter, head of fixed interest research at Quilter Cheviot, commented: "Despite its ability to hold rates today, the market still expects the ECB to be in a rate raising mood for the rest of the year."
"Clearly how aggressive it is in upping interest rates depends broadly on what is happening away from the continent, and that is making the job of the policy committee incredibly challenging."
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Part of this Story
Traders see September rate hike as European Central Bank mulls energy price spike