Key Takeaways
- Swap markets are pricing in no rate hike at the ECB’s July 23 meeting, after the central bank raised its key rate by 0.25 percentage points to 2.25% in June.
- While higher oil prices could lift headline inflation in the coming months, economists see little evidence of significant second-round effects feeding into inflation.
- Analysts are expecting a rate hike in September before pausing for the remainder of 2026.
A rate hold appears the most likely outcome when the European Central Bank meets on July 23, even as the Iran war has reignited and energy prices have moved higher once more.
Still, the rebound in oil prices has clouded the inflation outlook and strengthened the case for further tightening later this year to bring inflation back to the ECB’s 2.00% medium-term target.
Interest rate swap markets—derivative markets where investors trade expectations for future interest rates—are now pricing in unchanged rates this month, followed by one to two rate hikes for the remainder of the year. The market is implying an 85% probability of a 0.25-percentage-point rate increase in September.
“With the ECB having taken firm action last month, there is no rush to hike interest rates again this month, with more than 90% of economists predicting rates to be held flat at 2.25%,” says Michael Field, chief European markets strategist at Morningstar.
“There are so many moving parts currently, including a complete lack of visibility on whether the Iran war will continue, and indeed whether oil prices, and thus inflation, could rise again in the coming months,” he says.
Will the ECB Hold Rates Next Week?
“There are many reasons for the ECB to wait in July. At its September meeting, the governing council can respond on the basis of the new inflation and growth projections—and by then it will also have two more months of inflation data, for July and August,” says Ulrike Kastens, senior economist at DWS.
Final euro area inflation for June came in at 2.8%, in line with the flash estimate and below the consensus forecast of 3.0%, though still above the ECB’s target. Core inflation, which excludes volatile components such as energy and food, was also confirmed at 2.4%, down from 2.5% in May.
ING’s global head of macro Carsten Brzeski also expects the ECB to remain on hold next week, arguing that the lack of fresh staff projections on inflation and growth makes an immediate move unlikely. Yet, the recent rebound in oil prices has revived the case for another increase later this year and could even tempt some hawkish policymakers to push for action sooner.
“Instead of a summer lull, next week’s meeting promises one last clash between the hawks and doves before anyone reaches for the sunscreen,” Brzeski says.
Berenberg senior economist Felix Schmidt argues that the absence of second-round effects—where companies pass on higher costs to consumers, who then demand higher wages—will allow the ECB to leave the deposit rate at 2.25 % at next week’s meeting.
“ECB President Christine Lagarde will not provide any forward guidance at the press conference and will retain maximum flexibility for the remaining meetings this year,” he says.
Martin Wolburg, senior economist at Generali Investments, also expects a pause on July 23: “While members of the governing council have maintained a generally hawkish communication, recent inflation data and the easing of energy prices have provided some relief.”
Based on the ECB’s June staff projections, the inflation outlook is now closer to the benign scenario than to the base scenario. This allows the ECB to keep the key rate at 2.25% for the time being, he says. “However, we recognize that risks remain tilted towards a final hike, likely by September, especially should the latest escalation in the Iran conflict persist.”
What Are the Key ECB Interest Rates?
The ECB began a cycle of rate hikes in July 2022, raising the deposit rate from -0.50% to 4.00% through 10 consecutive increases. From September 2023, it cut interest rates eight times, bringing the benchmark rate back to 2.00%, before policymakers resumed tightening in June 2026.
Since June 17, the three ECB key interest rates are:
- Deposit rate: 2.25% (up from 2.00%)
- Main refinancing rate: 2.40% (up from 2.15%)
- Marginal lending facility: 2.65% (up from 2.40%)
Will Eurozone Inflation Rise Again?
The recent rise in oil prices was driven by renewed concerns over the security of shipping routes in the Gulf and escalating rhetoric between Washington and Tehran, reviving fears that another energy shock could complicate the inflation outlook for the euro area.
Brent crude oil prices have risen roughly 16% since the tensions intensified again in early July.
“Oil prices have risen again recently, but not to the extent seen in March and April,” says DWS’s Kastens. “Based on oil futures markets, prices are likely to fall back further. Energy prices should therefore have more of a dampening effect on inflation going forward.”
Kastens expects headline inflation to return to 2% in the second half of next year, potentially even a touch below that level. Meanwhile, core inflation is likely to remain somewhat higher, mainly because of services inflation.
In their June 11 inflation forecast, ECB staff revised expectations. They now see headline inflation averaging:
- 3.0% in 2026 (up from 2.6%)
- 2.3% in 2027 (up from 2.0%)
- 2.0% in 2028 (down from 2.1%)
For core inflation, which excludes volatile components such as energy and food, ECB staff project an average of 2.5% in 2026 and 2027, and 2.2% in 2028. This compares with March’s projections of 2.3% in 2026, 2.2% in 2027, and 2.1% in 2028.
Will the ECB Raise Interest Rates in September?
Morningstar’s Michael Field says while the ECB is likely to adopt a wait-and-see approach for now, it may take further action down the line if necessary. “For investors this course of action is being viewed as prudent, with equity markets generally holding up in the face of increased uncertainty,” he adds.
ING’s Brzeski argues that the recent rebound in oil prices has effectively returned the ECB to the macroeconomic backdrop underlying its June projections. He says while there remains a small chance that the ECB will hike next week, the more realistic scenario is a hike at the September meeting.
When Are the Next ECB Meetings in 2026?
- July 23, 2026
- Sept. 10, 2026
- Oct. 29, 2026
- Dec. 17, 2026
“The ECB is likely to signal that June’s rate increase was not necessarily the last one,” DWS’s Kastens says, adding that another move in September remains possible and would probably conclude the tightening cycle.
