Rate hold welcomed, but long-term financing costs show no sign of falling

The European Central Bank left its key interest rates unchanged at its July meeting, keeping the deposit rate at 2.25% following June's 25 basis point increase. The decision was universally anticipated and removes the immediate threat of another increase for property borrowers. It provides considerably less reason, however, to expect financing costs to fall.

The ECB raised rates in June for the first time since September 2023, responding to inflationary pressure triggered by the war in Iran. Since then, headline eurozone inflation has fallen from 3.2% in May to 2.8% in June — progress, but still above the ECB's 2% target. The central bank was explicit after Thursday's meeting: "Uncertainty remains high, and the full impact of the energy shock on inflation has not yet been felt." That is not the language of a central bank preparing to ease.