The Frankfurt-based European Central Bank kept the deposit facility rate, the main interest rate influencing monetary policy, at 2% on Thursday, which is the lowest level in more than two years.
As the economy is performing relatively well and the US trade talks are still underway, analysts were expecting no rush from the European Central Bank (ECB) to lower the benchmark interest rate.
The ECB sets the monetary policy for the eurozone, mainly through three interest rates. The deposit facility is the interest rate banks receive when they deposit money with the central bank overnight.
The interest rate on the main refinancing operations is the rate banks pay when they borrow money from the ECB for one week, while the marginal lending facility is the rate banks pay when they borrow from the ECB overnight.
Both the main refinancing operations and marginal lending facility rates remained unchanged at 2.15% and 2.40% respectively on Thursday.
At the ECB’s previous meeting, the bank cut its key interest rates for the eighth time since June 2024, bringing down the key rate to 2%, from a record high of 4%.
While inflation in the eurozone is remaining close to the 2% target of the central bank, a potential EU-US trade agreement could fuel price increases in the bloc. Therefore, the ECB was expected to hold off cutting rates until the potential implications of the EU-US trade talks become clear.
"What is probably holding most sway in this decision is the tariff uncertainty that remains abound," says Richard Carter, head of fixed interest research at Quilter Cheviot.
The EU-US trade talks are up against the 1 August deadline. "While it looks like the US and EU may approve some sort of deal by then, it is by no means a guarantee. Even if something is agreed, it is also likely to be fairly light on detail. As such, the ECB will want to see what is agreed, if anything, before making its next move," Carter added.
