ECB rates on hold despite higher oil prices

It is highly likely that the ECB Governing Council will leave its deposit rate unchanged at 2.25% next week. Although energy prices have risen sharply in the past few weeks, they remain lower than in the ECB’s baseline scenario. The next decision, in September, might be a close call if the Strait of Hormuz remains largely closed, but as long as energy prices don’t sky-rocket before then, the continued absence of second-round effects should persuade policymakers that no further tightening is required. Instead, we think the ECB’s next move will be a rate cut in 2027.