European Daily ECB Recap—Back to the Baseline

Economics Research 23 July 2026 | 8:17PM BST

European Daily: ECB Recap—Back to the Baseline

n The Governing Council held rates unchanged and delivered no major surprises. Sven Jari Stehn | President Lagarde’s main message during the press conference was that, while Goldman Sachs International

there had been some “relatively benign” developments since the June meeting, Alexandre Stott | the situation was now “back to the baseline” owing to the resumption of conflict Goldman Sachs Bank Europe SE - Paris in the Middle East. Lagarde revealed some support for a hike at today’s meeting Branch

and that the Council will be very attentive to the data until the September meeting. n Given today’s communication and the renewed surge in energy prices, a second hike in September seems very likely. Moving again in September would also be consistent with the simulations of our macro model, which calls for one further hike. We thus retain our forecast for a terminal deposit rate of 2.5% in September. n The renewed rise in energy prices points to a low hurdle for a third hike if growth remains resilient, indirect inflation effects build and core inflation firms significantly in coming months. More than three hikes this year, however, would likely require clear evidence of second-round effects in the wage and inflation expectations data. n We update our rate path scenario analysis and raise the probability of further hikes. Our scenarios now imply a more notable upside skew relative to our baseline rate path but remain significantly below market pricing.

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ECB Recap—Back to the Baseline

The Governing Council held rates at today’s meeting, as widely expected, and delivered no major surprises.

The Council noted that economic activity has improved and that underlying inflation remains contained but acknowledged that the energy shock will continue to be a headwind to growth and feed into higher prices. The Council also left the risk assessment unchanged—to the upside for inflation and to the downside for growth— but pushed it back from the monetary policy decision to the monetary policy statement. The Council made no changes to its written guidance and President Lagarde likewise refrained from commenting on the path for rates during the press conference.

Lagarde’s main message at today’s meeting was that, while there had been some “relatively benign” developments since the June meeting, the situation was now “back to the baseline” owing to the resumption of conflict in the Middle East. She specifically referred to the sharp fall in energy prices after the MoU announcement, the resilience of growth, and inflation declining further than anticipated in June. But she also stressed that the flaring up of the conflict had led to serious developments in commodities markets. She added that, as a result, her comments at Sintra that risks were becoming “more broadly balanced” no longer stood.

Although the decision to hold rates today was unanimous, Lagarde revealed that some governors had already “asked themselves whether they should consider a hike” at this meeting. But she explained that, in the end, members concurred that they were positioned adequately to wait, and that they would be very attentive to the data and any developments until the September meeting. She added that officials would be particularly focused on the next two inflation releases, the Q2 GDP and compensation-per-employee figures, as well as the next two PMI prints and consumer expectations surveys. Lagarde reiterated that the Council was only providing framework guidance, not forward guidance, and that markets had a good understanding of the ECB’s reaction function.

Looking Ahead Given today’s communication and the renewed surge in energy prices, a hike in September is very likely. At this stage, a hold in September would likely require both sharply lower energy prices (back to the levels seen in early July) and notably weaker inflation data, resulting in a significant downward revision of the staff…