Key interest rates held at 2.25 percent as energy shock lingers

Euro area headline inflation fell to 2.8 percent in June 2026 from 3.2 percent in May, supported by lower energy and food price growth.

However, pipeline price pressures remain elevated as the energy shock triggered by Middle East hostilites continues to feed through inputs and selling expectations.

While core inflation eased to 2.4 percent and wage growth remained moderate at 3.5 percent, short-term inflation expectations remain elevated.

The ECB Governing Council left the deposit facility rate at 2.25 percent, the main refinancing rate at 2.40 percent, and the marginal lending rate at 2.65 percent.

Growth risks remain tilted to the downside amid ongoing geopolitical uncertainty.

Euro area economic activity expanded by 0.3 percent in the second quarter excluding volatile Irish data, driven by resilient services, defense spending, and artificial intelligence investment.

Yet manufacturing and construction remain constrained by heightened uncertainty and elevated input costs.

Bank lending survey data reveals a further mild tightening of credit standards for firms and mortgages in the second quarter, while corporate borrowing rates stabilized at 3.6 percent in May.