ECB holds deposit rate at 2.25% as Strait of Hormuz crisis keeps Brent crude near $100 and September hike looms

Decision unchanged

The European Central Bank left its three key interest rates unchanged on Thursday, keeping the deposit facility rate at 2.25%, the main refinancing rate at 2.40% and the marginal lending facility at 2.65%. The decision was widely expected after the Governing Council delivered a 25-basis-point increase in June, the first hike in three years, lifting the deposit rate from 2.00% to its current level.

The ECB acknowledged that energy prices, while very volatile, are currently close to the baseline scenario of the June Eurosystem staff projections but remain well above pre-conflict levels. The statement stressed that the full inflationary impact of the energy disturbance has not yet materialised.

Uncertainty remains high and the inflationary impact of the energy shock has not yet fully manifested itself. The Governing Council is therefore closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects.

Inflation moderates but energy risks loom

Eurozone headline inflation fell to 2.8% in June, down four-tenths from 3.2% in May, while core inflation, which strips out energy and food, held at 2.4%. The slowdown gave the ECB room to pause, but the relief may be temporary. Brent crude flirted with the $100-a-barrel mark on Thursday, pushed higher by the renewed US-Iran-Israel hostilities and the near-total closure of the Strait of Hormuz, a chokepoint that normally carries about a fifth of global oil exports.

Although inflation has moderated temporarily, the market continues to anticipate a scenario of elevated prices for longer.

Geopolitical backdrop

The conflict, which began in late February 2026 and has now lasted more than 140 days, has kept the strait effectively blocked. A brief truce and partial reopening a month ago allowed some disinflationary breathing space, but the recent escalation, with fresh bombardments and stalled US-Iran peace talks, has reversed that trend. Several sources noted that the June rate hike was taken when negotiations appeared closer to a breakthrough than they do now.

Market and analyst expectations

Financial markets had priced a 92% probability of a hold, according to the ECB Watch tool cited by El Periódico. Attention has already shifted to the next meeting on 10 September, where the same tool assigns roughly an 80% chance of a rate increase. Analysts from Natixis CIB cautioned that the current inflation uptick is largely supply-driven, linked to geopolitical tensions and energy costs, and that the ECB should avoid an overly aggressive response that could hurt growth. Ebury noted that if geopolitical pressure persists and continues to drive energy prices, a September hike cannot be ruled out. Generali Investments, Crédit Mutuel and J Safra Sarasin also expect the ECB to reassess after the summer break, especially if Washington-Tehran talks remain deadlocked.

What comes next

The ECB is sticking to its data-dependent approach, refusing to pre-commit to a specific rate path. The summer pause buys time for new inflation readings and updated macroeconomic projections due in September. A prolonged Middle East conflict would rekindle price pressures and reinforce a more restrictive bias, while any diplomatic breakthrough that reopens the Strait of Hormuz could ease the urgency to tighten further.