ECB Holds Rates Steady at 2.25% to Assess Iran War Inflation Impact; September Hike All But Certain

Bloomberg reported that the European Central Bank kept borrowing costs unchanged, awaiting data to judge whether price pressures unleashed by the Iran war require additional tightening.

The deposit rate remained at 2.25%, as anticipated by economists and investors. The ECB reiterated it won't pre-commit but will act one meeting at a time based on incoming information.

Officials said uncertainty remains high and the full inflationary impact of the energy shock has yet to play out. The Governing Council is closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects.

Swaps imply a quarter-point hike in September is all but certain, with another almost fully priced by year-end. The euro held losses, down 0.2% against the dollar at around $1.1390.

The ECB's hawkish posture preserves its status at the vanguard of Group-of-Seven central banks after it last month became the first in that club to raise rates since the Iran war began.

The September meeting is widely seen as a natural point to deliver another move if required, backed by new quarterly staff forecasts and inflation prints. June's staff projection anticipated 3% inflation this year, moderating to 2.3% and 2% in 2027 and 2028.

Brent crude is closing in on $100 a barrel after Iran-backed Houthi militants said they attacked two Saudi Arabian tankers in the Red Sea, threatening deeper supply disruptions. That risks putting renewed upward pressure on inflation that slowed to 2.8% in June.

Officials analyzed the 2011 rate-hike errors when raising rates in June, concluding the thing to avoid this time is pre-commitment to future tightening. Neither U.S. President Donald Trump nor officials in Tehran are signaling a likely resumption of peace talks.